UNITED STATES SECURITIES AND EXCHANGE COMMISSION



Washington, DC 20549


FORM 10-K

|[X] |  | Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended September 30, 2004
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------

|[   ] |  | Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from ____________ to ____________.
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



Commission File No. 0-13143


INNOVEX, INC.

(Exact name of registrant as specified in its charter)



|Minnesota (State or
other jurisdiction of incorporation or organization)                |  |  |  | 41-1223933 (IRS Employer Identification No.)
|--------------------------------------------------------------------------------------- |  |  |  | --------------------------------------------
|5540 Pioneer Creek
Drive Maple Plain, Minnesota(Address of principal executive offices) |  |  |  | 55359-9003 (Zip Code)                       



Registrants telephone number, including area code: (763) 479-5300Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12 (g) of the
Act: Common Stock ($.04 par value)(Title of Class)


Indicate by check mark whether the registrant: (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.     Yes  [X]    No [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (S229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form
10-K.    [   ]

Indicate by check mark whether the registrant is an accelerated filer (as defined
in Exchange Act Rule 12b-2)     Yes  [X]    No [   ]

The aggregate market value of shares held by non-affiliates is $123,510,704
computed by reference to the last sale price of the Companys Common Stock, as reported in the Nasdaq National Market system, of $6.79 per share
on March 31, 2004, the last business day of the Companys most recently completed second fiscal quarter. As of November 15, 2004, the Company had
outstanding 19,119,419 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the definitive Proxy Statement to be delivered to shareholders in
connection with the Annual Meeting of Shareholders to be held January 18, 2005, are incorporated by reference into Part III.






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Index

|           |    |  |  |                                                                                                |  | Page
|---------- | -- |  |  | ---------------------------------------------------------------------------------------------- |  | ----
|PART
I     |    |  |  |                                                                                                |  |     
|           |    |  |  |                                                                                                |  |     
|Item
1.    |    |  |  | Business                                                                                       |  | 1   
|Item
2.    |    |  |  | Properties                                                                                     |  | 14  
|Item
3.    |    |  |  | Legal Proceedings                                                                              |  | 14  
|Item
4.    |    |  |  | Submission of Matters to a Vote of Security Holders                                            |  | 15  
|Item
4A.   |    |  |  | Executive Officers of Registrant                                                               |  | 15  
|           |    |  |  |                                                                                                |  |     
|PART
II    |    |  |  |                                                                                                |  |     
|           |    |  |  |                                                                                                |  |     
|Item
5.    |    |  |  | Market for Registrants Common Equity and Related Stockholder Matters                          |  | 17  
|Item
6.    |    |  |  | Selected Financial Data                                                                        |  | 18  
|Item
7.    |    |  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations          |  | 18  
|Item
7A.   |    |  |  | Quantitative and Qualitative Disclosures about Market Risk                                     |  | 26  
|Item
8.    |    |  |  | Financial Statements and Supplementary Data                                                    |  | 27  
|Item
9.    |    |  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           |  | 41  
|Item
9A.   |    |  |  | Controls and Procedures                                                                        |  | 41  
|Item
9B.   |    |  |  | Other Information                                                                              |  | 41  
|           |    |  |  |                                                                                                |  |     
|PART
III   |    |  |  |                                                                                                |  |     
|           |    |  |  |                                                                                                |  |     
|Item
10.   |    |  |  | Directors and Executive Officers of the Registrant                                             |  | 42  
|Item
11.   |    |  |  | Executive Compensation                                                                         |  | 42  
|Item
12.   |    |  |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 42  
|Item
13.   |    |  |  | Certain Relationships and Related Transactions                                                 |  | 42  
|Item
14.   |    |  |  | Principal Accountant Fees and Services                                                         |  | 42  
|           |    |  |  |                                                                                                |  |     
|PART
IV    |    |  |  |                                                                                                |  |     
|           |    |  |  |                                                                                                |  |     
|Item
15.   |    |  |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                |  | 43  
|           |    |  |  |                                                                                                |  |     
|SIGNATURES | 45

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PART I

ITEM I.    BUSINESS



We maintain a website at www.innovexinc.com.
Our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our periodic reports on Form 8-K (and any amendments to these reports) are
available free of charge on our website as soon as reasonably practical after we file these reports with the SEC.


Our Company



We are a leading worldwide provider of flexible
circuit interconnect solutions to original equipment manufacturers (OEMs), in the electronics industry. We offer a full range of customized
flexible circuit applications and services from initial design, development and prototype to fabrication, assembly and test on a global basis. We
target high volume markets where miniaturization, form and weight are driving factors and flexible circuits are an enabling technology. Applications
for flexible circuits currently addressed by us include data storage devices such as hard disk drives (HDDs), flat panel displays
(FPD) including liquid crystal displays (LCDs) for mobile communication devices and large format plasma screens, tape drives
and printers. Our customers include 3M, Dell, Hitachi, HP, Maxtor, Medtronic, Philips, Quantum, SAE Magnetics (a subsidiary of TDK), Samsung, Seagate,
Staktek, StorageTek, Xerox and other leading electronic OEMs.


Our Industry and Market Trends



Flexible circuit interconnects provide electrical
connection between components in electronic systems and are increasingly used as a platform to support the attachment of electronic components.
Flexible circuits consist of copper conductive patterns on flexible substrate materials, such as polyimide. Flexible circuit interconnects frequently
incorporate components, such as integrated circuits (ICs), connectors, stiffeners, resistors and capacitors mounted directly on a flexible
circuit. Generally, flexible circuits offer several advantages over other technologies such as rigid printed circuit boards (PCBs) and
ceramic hybrid circuits, particularly for small, complex electronic systems. Flexible circuits, due to their mechanical flexure and three-dimensional
shape, accommodate packaging contours and motion in a manner that traditional two-dimensional, rigid PCBs cannot, particularly in applications
involving smaller, more portable and complex electronic devices where space available to designers is at a premium.




We believe that the overall market for high density
flexible circuits is poised for substantial growth over the next several years as a result of favorable technological and market trends that are
expected to drive increased adoption. These trends include the following:




Miniaturization, Portability
and Complexity of Electronic Products.    Electronics OEMs continue to design and introduce more compact and portable
high-performance products with greater functionality. The complexity of these new products requires smaller size, lighter weight, greater circuit and
component density, better thermal dissipation properties, higher frequencies and increased reliability as compared to conventional rigid board
assemblies. These requirements often necessitate the use of high density flexible circuit interconnects.




Outsourcing.    OEMs are increasingly focusing on their core competencies and outsourcing their captive component
and subsystem manufacturing. To meet their rapidly changing electronic interconnect requirements, many OEMs have moved to limit their vendor base to a
smaller number of technically qualified, strategically located suppliers capable of providing both quick-turn prototype and pre-production quantities
as well as cost-competitive volume production quantities. This allows OEMs to reduce time to market, avoid delays in new product introductions, reduce
manufacturing costs and avoid logistical complexities.




Increased Usage of HDD in
Consumer and Non-traditional Applications.    The emerging consumer electronics segment that includes devices such as the
Xbox gaming console, TV set top recorders and digital music players such as the iPod, is emerging as a significant driver of growth for
HDDs.




Rapid Expansion of Active
Color FPD Applications.    The market for handheld devices with FPDs is expanding rapidly with an increasing number of these
devices migrating to active color FPDs requiring high density flexible circuits.


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High density flexible circuits are increasingly
being used in high unit volume consumer electronic products such as mobile communications devices, flat panel displays, digital televisions and inkjet
printers. This trend is driven by the end market, which demands consumer products with additional functionality, availability in lighter weight smaller
packages, better performance and lower cost than previous generations of systems. To meet this demand, OEMs will need to continually evaluate more
complex interconnect solutions that allow them to continue to enhance their product offerings in a cost-effective manner.


Competitive Strengths



We believe our industry leadership is the direct
result of our technological innovation and our ability to provide comprehensive solutions that address our customers specific interconnect needs.
Our key competitive strengths include:




Technology
Leadership.    Although there are a large number of flexible circuit manufacturers, only a few compete with us in high-end,
sub-100 micron applications. We believe that technology, design capability, quality and price are key competitive factors in this segment. Our
manufacturing technology includes proprietary processes and chemical recipes which, when combined with our design expertise and experience, enable us
to deliver high unit volumes of complex high density flexible circuits at cost-effective prices.




Comprehensive Product
Portfolio.    Our products address a range of applications that include the following: (i) flex suspension assemblies
(FSA), which provides the electrical interconnect from the disk drive head to the back-end electronics of the disk drive; (ii) actuator
flex (AFC), which provides the back-end electrical interconnect for hard disk drives; (iii) flat panel display (FPD) which
provides the electrical interconnect to LCDs for mobile communication devices or large screen plasma displays; and (iv) a variety of high-end, high
density flexible circuits for markets such as printers, semiconductor packaging and medical applications.




Product
Innovation.    We are recognized as a technology innovator with a history of developing products that provide better
performance at a lower cost than our competitors. The technical expertise we have developed in serving the highly demanding HDD industry has enabled us
to introduce advanced products in other rapidly growing markets.




Leading Customer
Relationships.    We have developed strong relationships with Seagate, Maxtor, Philips, Samsung, Hitachi and other industry
leaders. Our customer relationships represent significant entry barriers as we believe that once a customer has selected us to design and manufacture a
flexible circuit interconnect, the customer generally relies on our design for the life of that specific application and, frequently, subsequent
generations of similar applications.




Global Manufacturing and
Supply Chain Efficiency.    We maintain manufacturing facilities in both the U.S. and Asia. Our U.S. facilities provide a high
level of automation while our Asian facilities allow us to consolidate the labor intensive aspects of production in a low-cost environment. The
combination of these two manufacturing models and our continued attention to manufacturing processes allows us to continually improve our production
yields, shorten our supply chain and lower the overall costs of our products.




Implementation of Six
Sigma.    Through the introduction of the Six Sigma quality management program, we are reducing the process variation in our
manufacturing facilities, resulting in improved quality, reliability and performance of our flexible circuit products. Six Sigma is a highly
disciplined quality management and process optimization methodology that relies on the rigorous use of statistical techniques to assess process
variability and defects. Six Sigma has been adopted by many large industrial companies to significantly improve their business
processes.




Experienced Management
Team.    Our management team has a demonstrated track record of successfully harnessing and capitalizing on disruptive
technology. They have managed rapid technological change by successfully transforming our company from a lead wire interconnect manufacturer to a
leading worldwide flexible circuit provider over a two-year period. While identifying and opening new markets for our flexible circuit products, our
management team has successfully implemented manufacturing efficiency plans throughout a global manufacturing and sourcing network.


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Our Strategy



To enhance our position as a leading provider of
flexible interconnect solutions we intend to pursue the following business strategies:




Continue to Expand Our Market
Share in Our Core Markets.    We believe that we will be able to continue to capture additional market share from leading OEMs
in the HDD market with our actuator flex solution. Certain HDD industry leaders have qualified our products for a number of next generation
applications and are currently evaluating our product offerings for additional future applications.




Continue to Penetrate New
Markets.    We have proven our ability to leverage our expertise in high volume, high density applications to address emerging
growth opportunities. We believe the technology, research and development and manufacturing capabilities we have developed to serve our core markets
have put us in a position to target additional high volume applications, such as FPD and inkjet printer cartridges.




Increase Manufacturing and
Supply Chain Efficiencies and Flexibility.    We intend to continue our manufacturing improvement and cost reduction efforts.
Through continued deployment of our Six Sigma quality management program, we intend to significantly improve our efficiency, reduce our manufacturing
and operating expenses and enhance the quality of the products we manufacture by decreasing manufacturing defects and improving product reliability. We
expect to realize cost efficiencies by applying more automation at all of our manufacturing facilities. We are also relocating our Maple Plain
operations to Thailand to improve our cycle time performance, facilitate problem solving communications and reduce our fixed cost structure. In
addition, by further integrating our operations with our suppliers and customers, we believe that we can continue to reduce our working capital needs
and improve our responsiveness to customer requirements.


Current Product Applications



We offer our products to a broad range of markets
including the hard disk drive, display, semiconductor packaging and consumer electronics markets. We believe our products are differentiated by their
advanced process technology, innovative design, low cost and the functional benefits they provide to our customers.




Current markets addressed by our products
include:




Data
Storage.    The disk drive market uses our FSA and AFC products. Our FSA product provides the electrical interconnect from the
disk drive head to the back-end electronics (actuator flex) of the disk drive. The FSA is a flexible circuit that is bonded to a suspension. Our AFC
flex product provides the back-end electronic interconnect for hard disk drives. We are a leading provider of flip chip interconnect solutions for
these applications. Flip chip technology, in which an unpackaged die is mounted directly onto the flexible circuit substrate, is becoming the
predominant interconnect technology for these applications.




Our other products for the data
storage market include interconnects used for tape drives, disk arrays and other interconnects used in hard disk drives. We will continue to provide
flexible circuit interconnect solutions to the tape storage industry to address customers continuing data backup and archiving
needs.




New
Ventures.    We continue to apply our technology and products to new markets. We produce advanced flexible circuits for
high-end consumer electronics markets and other markets that could benefit from the technological advantages of our flexible interconnect solutions.
Based on our assessment of industry trends and market indicators, we believe these markets will grow rapidly in the future. We are currently offering
or developing new product offerings for the following applications: LCD displays for mobile communication devices, large screen plasma and LCD
displays, inkjet printer cartridges, semiconductor packaging and medical applications.


Technology



We are recognized as a technology leader in
fine-line, single and double-sided flexible circuit technology and flexible circuit assembly technology, including advanced chip-on-flex, flip
chip-on-flex and precision placement assembly technologies. Our process technology includes proprietary processes and chemical recipes, which
coupled


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with our design expertise and experience,
enables us to deliver high unit volumes of complex high density flexible circuits at cost-effective yields.




Design
Technology.    The flexible circuit interconnects we manufacture are designed specifically for each application, requiring
significant joint design activities with the customer at the start of a project. We have developed design methodologies that solve difficult
interconnection problems and save our customers time and money. We also design and produce, in volume, flexible circuits that range from high density,
single-sided circuits to more complex double-sided and multi-layer circuits. We are continually investing in and improving our computer-based design
tools to more quickly design new flexible circuit interconnects, to enhance cooperative design and communication with our customers and to more closely
link designs to our manufacturing process.




Circuit Fabrication
Technology.    We have extensive experience producing fine-line polyimide flexible circuits and have pioneered manufacturing
processes that deliver high unit volumes at cost-effective yields. At the core of the process is roll-to-roll fine-line circuit processing. The
starting materials are flexible laminates composed of a thin dielectric film that is either adhesive-bonded to treated copper foil or metalized without
the use of adhesives. Very accurate images (down to 0.001 inches) are produced in volume in photoresist. Circuit conductors are then formed by
chemically etching the underlying copper. Coverfilm and covercoat materials are adhered to the circuitry to provide an insulative coating and to expose
contact pads for surface metalization. The exposed copper surfaces are then coated with solder, gold or another surface finish for assembly or bonding
applications. Laser processing is used to create various openings such as vias and to cut contoured peripheries in substrate
materials.




Our key flexible circuit fabrication technologies
include:




Fine Feature Wide-Width
Roll-to-Roll Processing.    Our process allows us to fabricate circuits with very fine line widths and spaces at higher
density of parts per square foot which increases material and equipment utilization. Processing 12-inch to 24-inch wide web (as opposed to the narrower
industry standard) in a continuous roll-to-roll format (as opposed to discrete panels) allows us to fabricate higher volumes at lower
cost.




Process
Technologies.    We utilize the following process technologies in our circuit fabrication process:




Semi-additive
Metallization.    Allows the fabrication of flexible circuits with finer lines and spaces through the selective metalization of
the conductors in the circuit fabrication process.




Laser
Processing.    Produces low cost, very fine openings, small vias and contoured shapes that solve density problems while
avoiding more expensive traditional alternatives. Also, using a laser to cut the periphery of parts allows prototypes and low volume production parts
to be built faster and without the cost of a blanking die.




Bondable Gold
Plating.    Prepares flexible circuit conductors and pads for various bonding processes including chip-on-flex, which saves
space and improves electrical performance by wire bonding a semiconductor die directly to the flexible circuit.




Coverfilm and Covercoat
Application.    Adheres coverfilm and covercoat materials to the circuitry to provide an insulative coating and to expose
contact pads for surface metalization. This process allows accurate positioning of solder plated pads to support fine pitch surface mount assembly to
the finished circuits.




Assembly and Test
Technology. We differentiate ourselves from our competitors by offering both assembly and test technology to provide complete flexible circuit
interconnect assemblies to our customers. We assemble passive electrical and various mechanical components, including connectors, stiffeners, diodes,
formed metal parts and other devices to flexible circuits in our plants in Thailand. We also perform advanced direct die attach and assembly of
integrated circuit devices as well as the functional testing of these flexible circuit assemblies. Assembling these components directly onto the
flexible circuit increases performance and reduces space, weight and cost.


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Flex Suspension
Assembly. We have exclusive license rights to a proprietary automated process to attach flexible circuits to suspensions for disk drive
applications.


Research and Development



We continually engage in research, development and
engineering activities. Our goal is to utilize these activities to improve and enhance existing products and processes and to develop new products and
processes in order to expand our market share. Our research and development effort is concentrated on improving and increasing long run flexible
circuit manufacturing capabilities for both adhesiveless and adhesive based flexible circuits, developing processes for manufacturing new products
including flexible circuits for disk drive, display, integrated circuit substrate and printer applications.




We have a 35% investment in, and work very closely
with, Applied Kinetics, Inc. (AKI), the company that developed the unique manufacturing process technology utilized by our FSA products. We
have a license to use this technology in our products for disk drive applications on an exclusive basis through 2009 and on a nonexclusive basis
thereafter until 2012, and we continue to work with AKI as part of our on-going development efforts.


Manufacturing



We have developed a manufacturing system that
combines the use of technology with the deployment of human resources in a geographic and organizational manner that we believe allows us to be a
global leader in providing low-cost, high technology flexible circuits. Quality systems are in place that are certified to standards set by demanding
customers in the electronics industry. All operations have received ISO 9002 certification.




We believe our manufacturing processes, in
particular our 12-inch and 24-inch wide web roll processing lines, are designed to optimize the utilization of automation, labor and capital, and
deliver better yield, material utilization and throughput relative to our competitors. Most of our automated circuit fabrication processes are
performed in Minnesota where there is an ample supply of qualified technical resources with the more labor intensive processes performed in Thailand to
remain competitive with low cost based competitors.


Suppliers



We purchase raw circuit materials, process chemicals
and various components from multiple outside sources. For components, we typically make short-term purchasing commitments to key suppliers for specific
customer programs. These commitments are usually made for three to twelve month periods. These suppliers commit to providing cooperative engineering,
as required, and in some cases maintain a local inventory to provide shorter lead times and reduced inventory levels for us. In most cases, suppliers
are approved, and are often dictated by our customers. For process chemicals, we rely on a limited number of key suppliers. We currently can obtain
certain types of photoresist, a liquid compound used in the photoetching process, certain copper and polyimide laminate materials and certain specialty
chemicals used in our manufacturing process from only one supplier of each such material. Alternate chemical products are available from other sources,
but process chemical changes would often require requalification of the processes, which could take weeks or months to complete. We mitigate these
risks by identifying stable companies with leading technology and delivery positions and by attempting to qualify two suppliers for all critical raw
materials and components.


Sales, Marketing and Customer Support



We sell and market our products directly to a number
of industries requiring electronic interconnects through the use of an internal sales staff. In addition, we utilize sales representatives on a limited
basis in several Asian countries where it is advantageous to be represented locally. Historically, we have sold a substantial portion of our flexible
circuit interconnects to a limited number of customers. We have benefited from early entry as a supplier to the disk drive industry and have been able
to leverage our relationships to supply next generation integrated flexible circuit interconnects. Our relationships combined with our reputation for
high standards of quality and innovative manufacturing processes have established us as a predominant supplier of interconnects for the HDD
industry.


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We provide our customers product design
support from our manufacturing locations in Minnesota and Thailand and from our sales and customer support offices in California, China, Singapore and
the United Kingdom. In addition, we provide on-site customer design support for our customers as required.




Even though our customer mix will change from period
to period in the future, we expect that sales to relatively few customers will continue to account for a high percentage of our net sales in the
foreseeable future. Sales to our two largest customers, Seagate and Maxtor, constituted 61% and 14% of net sales, respectively, for fiscal 2004, 65%
and 10% of net sales, respectively, for fiscal 2003 and 64% and 9% of net sales, respectively, for fiscal 2002. Sales to our five largest customers
constituted 90% of net sales for fiscal 2004, 90% of net sales for fiscal 2003 and 86% of net sales for fiscal 2002. The loss of a significant customer
or a substantial reduction in orders by any significant customer, including reductions due to market, economic or competitive conditions in the
computer, computer peripheral, mobile communication devices and consumer markets has had and may continue to have a material adverse effect on our
business, financial condition and results of operations.


Environmental Controls



Flexible circuit interconnect manufacturing requires
the use of chemicals. As a result, we are subject to a variety of environmental laws relating to the storage, discharge, handling, emission,
generation, manufacture, use and disposal of chemicals, solid and hazardous waste and other toxic and hazardous materials used to manufacture our
products. We have discontinued operations at our Chandler, Arizona location and decommissioned the facility. Our preliminary review of the facility
suggests that no material remediation costs will be required. However, given the uncertainties associated with environmental contamination, there can
be no assurance that such costs will not have a material adverse impact on us. Pursuant to the agreements governing the 1993 ADFlex purchase of certain
assets from Rogers Corporation (Rogers), Rogers has retained all environmental liabilities relating to the purchased assets prior to the
closing date of the acquisition. While we believe Rogers currently has sufficient assets to fulfill its obligations under the acquisition agreements,
if environmental liabilities requiring remediation are discovered and we are unable to enforce the acquisition agreement against Rogers, we could
become subject to costs and damages relating to such environmental liabilities. Any such costs and damages imposed on us could materially adversely
affect our business, financial condition and results of operations.




We believe we have been operating our facilities in
substantial compliance in all material respects with existing environmental laws and regulations. However, we cannot predict the nature, scope or
effect of legislation or regulatory requirements that could be imposed or how existing or future laws or regulations will be administered or
interpreted with respect to products or activities to which they have not previously been applied. For this reason, we implemented procedures geared
toward minimizing the negative impacts and reducing potential financial risks arising from environmental issues. Compliance with more stringent laws or
regulations, or more vigorous enforcement policies of regulatory agencies could require substantial expenditures by us and could adversely affect our
business, results of operations and financial condition. We do not anticipate any material amount of environmental-related capital expenditures in
fiscal 2005.


Intellectual Property



We believe that, due to our customers demands
for rapid technological advances and the resulting limited product life cycles, the success of our business generally depends more on the technical and
engineering expertise, creativity and marketing and service abilities of our employees than on patents, trademarks and copyrights. Nevertheless, we own
patents and have a policy of seeking patents when appropriate on inventions concerning new products and improvements as part of our ongoing research,
development and manufacturing activities. We control patents related to the FSA attachment process and Flexgimbal Suspension Assembly (FgSA) products
for disk drive applications and believe that these patents give us a competitive advantage in the disk drive industry. There can be no assurance that
any patents issued to us or licensed by us will provide a competitive advantage or will not be challenged by third parties, or that the patents of
others will not have an adverse effect on our ability to do business. Furthermore, there can be no assurance that others will not independently develop
similar products, duplicate our products or design around the patents issued to us or licensed by us. In addition, there can be no assurance that
foreign intellectual property laws or our agreements will protect our intellectual property rights in


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any foreign country. Any failure to protect our
intellectual property rights could have a material adverse effect on our business, results of operations and financial condition.




We have a 35% investment in, and work closely with,
AKI, the company that developed the unique manufacturing process technology utilized by our FSA products and the unique product design technology
utilized by our FgSA products. We have a license to use this technology in our products for disk drive applications on an exclusive basis through 2009
and on a nonexclusive basis thereafter until 2012. The rights granted to us by AKI are royalty-bearing and may not be sublicensed without the consent
of AKI.


Employees



As of September 30, 2004, we had a total of 4,118
employees. Of these employees, 203 were based in Maple Plain, Minnesota, 202 were based in Litchfield, Minnesota, and 3,713 were based in Thailand. Our
future operating results depend in part upon our ability to attract and retain other qualified management, technical, manufacturing, sales and support
personnel for our operations. Competition for such personnel is intense and there can be no assurance that we will be successful in attracting or
retaining such personnel. The failure to attract or retain such persons could materially adversely affect our business, results of operations and
financial condition.


Competition



The flexible circuit interconnect market is
differentiated by customers, markets and geography with each niche having its own combination of complex packaging and interconnection requirements. We
believe the market competes principally on the basis of design capability, price, quality, flexibility and technological advancements in underlying
applications. During periods of economic slowdown in the electronics industry and other periods when excess capacity exists, electronic OEMs become
more price sensitive. We believe that once a customer has selected a particular vendor to design and manufacture a flexible circuit interconnect, the
customer generally relies upon that vendors design for the life of that specific application and, frequently, subsequent generations of similar
applications. Accordingly, it is difficult to achieve significant sales to a particular customer with respect to any application once another vendor
has been selected to design and manufacture the flexible circuit interconnect used in that application. While this market paradigm may provide a
barrier to our competitors in the markets served by us, it also may present an obstacle to our entry into other markets.




The flexible circuit interconnect market is highly
competitive. We experience competition world-wide from a number of leading foreign and domestic providers including 3M Company for high-end technology
applications, and NOK (Nippon Mektron), Fujikura Ltd., Multi-Fineline Electronix, Inc. (M-Flex) and Sumitomo for standard flex
and assembly applications. 3M, Sumitomo, NOK and Fujikura are substantially larger than we and possess greater financial and other resources. There are
a number of other flexible circuit manufacturers that target other flexible circuit markets and rarely compete directly with us. In addition,
competitors for disk drive market integrated suspension assembly applications include Hutchinson Technology Incorporated, KRP, Magnacomp International
Limited, Nihon Hatsujo Kabusikigaisha (NHK) and Optimal Technology Limited. Expansion of our existing products or services could expose us
to new competition. Moreover, new developments in the consumer electronics industry could render existing technology obsolete or less competitive and
could potentially introduce new competition into the market. There can be no assurance that our competitors will not develop enhancements to, or future
generations of, competitive products or services that will offer superior price or performance features to those offered by us or that new competitors
will not enter our markets. Finally, as many of our competitors are based in foreign countries, they have cost structures and prices based on foreign
currencies. Accordingly, currency fluctuations could cause our U.S. dollar-priced products to be less competitive than our competitors products
priced in other currencies.


Backlog



The backlog for our continuing operations was $33.8
million, $20.8 million and $23.9 million at September 30, 2004, 2003 and 2002, respectively. Our backlog fluctuates based on the timing of the receipt
of orders from customers. Backlog is defined by us as firm orders that are scheduled to be delivered within 12 months from the date of the order. While
we believe substantially all of our current backlog will be delivered within 12 months,


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customers may determine not to release orders
into production, may extend requested delivery dates or cancel orders. In such cases, we may not realize the revenue indicated by the
backlog.


Risks Related to Our Business



An investment in our common stock involves a high
degree of risk. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of,
or that we may currently deem immaterial, may become important factors that harm our business, financial condition or results of operations. If any of
the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the trading price of our
common stock could decline, and you may lose all or part of your investment.




Our sales are concentrated in a small customer
base and in the HDD industry.




Sales to our largest customer constituted 61% of net
sales for fiscal 2004, 65% for fiscal 2003 and 64% for fiscal 2002, respectively. Sales to our five largest customers constituted 90% of net sales for
fiscal 2004, 90% of net sales for fiscal 2003 and 86% of net sales for fiscal 2002. The loss of one or more of our major customers or a substantial
reduction in orders by any significant customer, for any reason, including reductions due to market, economic or competitive conditions in the
computer, computer peripheral, mobile communication device and high-end consumer markets, the development by a customer of the capability to produce
flexible circuits in high volume for its own products, a transfer of manufacturing operations by a customer to a lower-cost country, a change in the
type of interconnect or suspension assembly used by our largest customers or the failure of a customer to pay its account balance with us, could have a
material adverse effect on our business, financial condition and results of operations.




Sales of our FSA and actuator flex products to the
hard disk drive industry accounted for 78%, 76% and 74% of our net sales in fiscal 2004, 2003 and 2002, respectively. The disk drive industry is
intensely competitive and technology changes rapidly. The industrys demand for disk drive components also fluctuates. The disk drive industry
experiences periods of increased demand and rapid growth followed by periods of oversupply and subsequent contraction. These cycles may affect
suppliers to this industry because disk drive manufacturers tend to order more disk drive components than they may need during growth periods, and
reduce orders for these components during periods of contraction.




Our selling prices are subject to pricing
pressure from our customers and market pressure from our competitors.




We deal with a limited number of large customers who
are able to exert significant pricing pressure on our products. Our selling prices are affected by changes in overall demand for our products, changes
in the specific products our customers buy and our products life cycles. A typical life cycle for our products begins with higher pricing when a
product is introduced and decreasing prices as it matures. To offset price decreases during a products life, we rely primarily on higher sales
volume and improving our manufacturing yield and productivity to reduce a products cost. If we cannot reduce our manufacturing costs as prices
decline during our products life cycles, our business, financial condition and results of operations could be materially adversely
affected.




The markets in which we operate are highly
competitive.




We operate in highly competitive markets and our
competitors can be expected to continue to improve the design and performance of their products and to introduce new products with competitive
price/performance characteristics. Competitive pressures often necessitate price reductions that adversely affect operating results. We will be
required to make a continued high level of investment in product development and research, sales and marketing and ongoing customer service and support
to remain competitive. There can be no assurance that existing or future competitors will not be able to duplicate our strategies or that competitive
pressures faced by us will not have a material adverse effect on our business, financial condition and results of operations.




Our operating results are subject to
fluctuations.




Our past operating results, and our gross margins,
have fluctuated from fiscal period to fiscal period. Our future operating results and gross margins may continue to fluctuate from fiscal period to
fiscal period due to a number of factors, many of which are outside our control and any of which could cause our stock price to
fluctuate.


8

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The primary factors that affect us include the
following:


| |  | changes in overall demand for our products;
|- |  | -------------------------------------------

| |  | technological changes (such as data density improvements) that
reduce the number of suspension assemblies per disk drive required by disk drive makers;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | changes in expected customer timing of new product
introductions;
|- |  | -----------------------------------------------------------------

| |  | changes in OEM customer manufacturing yields throughout their
products life cycles;
|- |  | ------------------------------------------------------------------------------------

| |  | changes in the specific products our customers buy;
|- |  | ---------------------------------------------------

| |  | changes in our selling prices;
|- |  | ------------------------------

| |  | changes in utilization of our production capacity;
|- |  | --------------------------------------------------

| |  | changes in our infrastructure costs;
|- |  | ------------------------------------

| |  | changes in our manufacturing process, or problems related to our
manufacturing process;
|- |  | ---------------------------------------------------------------------------------------

| |  | changes in our manufacturing yields;
|- |  | ------------------------------------

| |  | changes in our production efficiency;
|- |  | -------------------------------------

| |  | long disruptions in operations at any of our plants for any
reason; and
|- |  | -----------------------------------------------------------------------

| |  | changes in the cost of, or limits on, available materials and
labor.
|- |  | --------------------------------------------------------------------



Difficulties in forecasting demand for our
products make it challenging to utilize our capacity efficiently.




If customer demand for our FSAs or our actuator
flex, display flex, stacked memory flex or tape storage flex products weakens, or if one or more customers reduce, delay or cancel orders, our
business, financial condition and results of operations could be materially adversely affected.




We typically allow customers to change or cancel
orders on short notice. We plan our production and inventory based primarily on forecasts of customer demand, including forecasts of customer pulls of
product out of our just-in-time inventory hubs. Our customers typically prefer a dual source supply, and therefore allocate their demand among
suppliers. Both customer demand and the resulting forecasts often fluctuate substantially. These factors, among others, create an environment where
scheduled production and capacity utilization can vary significantly from week to week, leading to variability in gross margins.




The following factors complicate accurate capacity
planning for market demand:


| |  | changes in the specific products our customers buy;
|- |  | ---------------------------------------------------

| |  | the pace of technological change;
|- |  | ---------------------------------

| |  | variability in our manufacturing yields and productivity;
and
|- |  | -------------------------------------------------------------

| |  | long lead times for most of our plant and equipment
expenditures, requiring major financial commitments well in advance of actual production requirements.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



We have at times increased our production capacity
and the overhead that supports production based on anticipated market demand which has not always developed as expected. Our inability to plan our
capacity requirements accurately, or our failure to put in place the technologies and capacity necessary to meet market demand, could have a material
adverse effect on our business, financial condition and results of operations.


Competing technologies may reduce demand for our products.



Flexible circuit interconnects provide electrical
connections between components in electrical systems and are used as a platform to support the attachment of electronic devices. While flexible
circuits offer several advantages over competing printed circuit board and ceramic hybrid circuit technologies, our customers may consider changing
their designs to use these alternative technologies for future applications. In particular, our largest customer is increasing utilization of an
alternative interconnect technology that competes with the electrical interconnect features of our FSA products. If our customers switch significant
portions of their business to alternative technologies, our business, financial condition and results of operations could be materially adversely
affected.




Future technological innovations may reduce demand
for disk drives. Data storage alternatives that compete with disk drive-based data storage currently exist. These storage alternatives include
semiconductor (flash) memory, tape memory and optical (DVD and CD) drives. The current core technology for disk drive data storage has been the
dominant technology in the industry for many years. This technology could be replaced by an alternate


9

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technology in the future. Our business,
financial condition and results of operations could be materially adversely affected if the computer industry adopts technology that replaces disk
drives as a computer data storage medium.




We have experienced annual losses from
operations in the fiscal year ended September 30, 2004 and in prior years, and we may not achieve net income on a consistent
basis.




While we generated net profits for several quarters
in fiscal 2004 and fiscal 2003, we had a net losses of $17.5 million for fiscal 2004, $3.0 million for fiscal 2003 and $3.8 million in fiscal 2002.
Whether we achieve net income on a consistent basis will depend on a number of factors, including:


| |  | the level of revenue in any given period;
|- |  | -----------------------------------------

| |  | our expense levels, particularly for manufacturing
costs;
|- |  | ---------------------------------------------------------

| |  | our manufacturing efficiency, particularly with respect to new
product introductions and high volume products;
|- |  | --------------------------------------------------------------------------------------------------------------

| |  | cultivating new AFC customers; and
|- |  | ----------------------------------

| |  | the qualification of new products, including new display flex
programs and printer flex products.
|- |  | -------------------------------------------------------------------------------------------------



To meet industry requirements and remain
competitive, we must continue to improve our process capabilities and develop and qualify new products.




Our continued success depends on our ability to
continue to develop manufacturing processes that are capable of tighter tolerances and to develop and rapidly bring to volume production new products
that meet increasingly higher performance specifications. A number of risks are inherent in this process. Increasingly higher performance
specifications, as well as transitions to new product platforms and materials, initially can lower our overall manufacturing yields and efficiencies.
This in turn can cause us to delay or miss product shipments. We also may incur higher manufacturing costs and sales returns or we may need to change
or develop new manufacturing processes. If processes change, we may need to replace, modify or design, build and install equipment. These changes may
require additional capital.




We may need to increase our research and development
and engineering expenses to support technological advances and to develop and manufacture new products and product features. We expect future flexible
circuits to require higher performance specifications and thinner or tighter lines and spaces and to incorporate new material sets.




If we fail to successfully introduce new products or
product features on a regular and timely basis, demand for our existing products could decline, and our business, financial condition and results of
operations could be materially adversely affected. If higher performance specifications and tighter lines and spaces are required and we are not able
to meet those requirements, our business, financial condition and results of operations could be materially adversely affected.




We must qualify our products with our customers. The
qualification process for these products can be time-consuming, complex and difficult. We cannot be sure that our products will continue to be selected
for design into our customers products. If we are unable to obtain additional customer qualifications, or if we cannot qualify our products for
high volume production quantities, or at all, our business, financial condition and results of operations could be materially adversely
affected.




We may not be able to manufacture our products
efficiently due to changes in demand or technology, or other unforeseen events.




We manufacture a wide variety of products with
different selling prices and manufacturing costs. Our product mix varies weekly as market demand changes. Any substantial variation in product mix can
lead to changes in utilization of our equipment and tooling, inventory obsolescence and overstaffing in certain areas, all of which could adversely
impact our business, financial condition and results of operations.




Rapid technological change in the various
electronics industries we serve has led to numerous design changes and tighter performance specifications. The resulting new product designs with
tighter performance specifications initially are more difficult to manufacture, could require additional capital expenditures and may require increased
development and support expenses. Manufacturing yields and efficiencies also vary from product to product. Newer products typically have lower initial
manufacturing yields and efficiencies as we commence volume manufacturing


10

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and thereafter ramp to full production. We have
experienced sales returns in the past and as we commence volume manufacturing, as new features for our products are introduced or as new manufacturing
processes are implemented, we may experience increased sales returns in the future. We cannot be sure that we will attain our output goals and be
profitable with regard to any of our new products.




Our manufacturing plants are located in Maple Plain
and Litchfield, Minnesota and Korat and Lamphun, Thailand, all of which can experience severe weather. Severe weather has, at times, resulted in lower
production and decreased our shipments.




We may experience difficulties in closing our
Maple Plain facility and transitioning its operations to our Litchfield and Thailand locations.




As we transfer production of certain products from
our Maple Plain manufacturing site to our other locations, we increase the risk of obsolete inventory and may encounter other difficulties. In the
past, such transfers have lowered initial yields and/or manufacturing efficiencies. This results in higher manufacturing costs. If we are unable to
efficiently transition our operations from Maple Plain to Litchfield and Thailand, our business, financial condition and results of operations could be
materially adversely affected.




We may not be able to adequately protect our
intellectual property.




We license the technology used to produce portions
of our FSA products in the HDD industry on an exclusive basis from Applied Kinetics, Inc. (AKI). Our ability to defend our rights to this
intellectual property depends on the validity and enforceability of AKIs proprietary technology. Should we be unable to enforce our rights with
respect to such intellectual property, our business, financial condition and results of operations could be materially adversely
affected.




We attempt to protect our intellectual property
rights through patents, copyrights, trade secrets and other measures. We may not, however, be able to protect our technology adequately. In addition,
competitors may be able to develop similar technology independently. Our success depends in large part on trade secrets relating to our proprietary
manufacturing processes. We seek to protect these trade secrets and our other proprietary technology in part by requiring each of our employees to
enter into non-disclosure and non-competition agreements. In these agreements, the employee agrees to maintain the confidentiality of all of our
proprietary information and, subject to certain exceptions, to assign to us all rights in any proprietary information or technology made or contributed
by the employee during his or her employment. In addition, we regularly enter into non-disclosure agreements with third parties, such as consultants,
suppliers and customers. These agreements may, however, be breached, and we may not have an adequate remedy for any such breach. In addition, our
competitors may otherwise learn or independently develop our trade secrets.




We believe that the patents we hold, control and may
obtain are valuable, but that they will not independently determine our success. Moreover, we may not receive patents for our pending patent
applications, and our issued patents may not be broad enough to protect our technology adequately. We compete in industries with rapid development and
technological innovation. We cannot be sure that we will be able to protect our future technology or that any patent issued to us will not be
challenged, invalidated, circumvented or infringed. In addition, we have only limited patent rights outside the United States, and the laws of certain
foreign countries may not protect our intellectual property rights to the same extent as do the laws of the United States.




Defending against intellectual property claims
may have a material adverse effect on our business.




We and certain users of our products, have received,
and may receive, communications from third parties asserting patent claims against us or our customers that may relate to our manufacturing equipment
or to our products or to products that include our products as a component. If any third party makes a valid infringement claim against us and we are
unable to obtain a license on terms acceptable to us, our business, financial condition and results of operations could be materially adversely
affected. We expect that, as the number of patents issued continues to increase, the volume of intellectual property claims made against us could
increase.




We may have difficulty obtaining an adequate
supply of raw materials at reasonable prices.




We currently can obtain certain types of
photoresist, a liquid compound used in the photoetching process, certain copper and polyimide laminate materials and certain specialty chemicals used
in our manufacturing process


11

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from only one supplier of each such material. If
we could not obtain the materials referred to above in the necessary quantities, with the necessary quality and at reasonable prices, our business,
financial condition and results of operations could be materially adversely affected.




The loss of key personnel could adversely
affect our business.




Our success depends upon the efforts, contributions
and abilities of our senior management. We cannot be sure that the services of our key personnel will continue to be available to us. The loss of
services of any of these employees could have a material adverse effect on our business, financial condition and results of
operations.




We may not be able to obtain the capital we
need to maintain or grow our business.




Our ability to execute our long-term strategy may
depend on our ability to obtain additional long-term debt and equity capital. We have no commitments for additional borrowings, other than our existing
credit facilities, or for sales of equity, other than under our existing employee benefit plans. We cannot determine the precise amount and timing of
our funding needs at this time. We may be unable to obtain future additional financing on terms acceptable to us, or at all. If we fail to comply with
certain covenants relating to our indebtedness, we may need to refinance our indebtedness to repay it. We also may need to refinance our indebtedness
at maturity. We may not be able to obtain additional capital on favorable terms to refinance our indebtedness.




The following factors could affect our ability to
obtain additional financing on favorable terms, or at all:


| |  | our results of operations;
|- |  | --------------------------

| |  | general economic conditions and conditions in the disk drive
industry;
|- |  | ----------------------------------------------------------------------

| |  | the perception in the capital markets of our
business;
|- |  | ------------------------------------------------------

| |  | our ratio of debt to equity;
|- |  | ----------------------------

| |  | our financial condition;
|- |  | ------------------------

| |  | our business prospects; and
|- |  | ---------------------------

| |  | changes in interest rates.
|- |  | --------------------------



In addition, certain covenants relating to our
existing indebtedness impose certain limitations on additional indebtedness. If we are unable to obtain sufficient capital in the future, we may have
to curtail our capital expenditures and reduce research and development expenditures. Any such actions could have a material adverse effect on our
business, financial condition and results of operations.




Servicing our existing debt may constrain our
future operations.




Our ability to satisfy our obligations to pay
interest and to repay debt is dependent on our future performance. Our performance depends, in part, on prevailing economic conditions and financial,
business and other factors, including factors beyond our control. To the extent that we use a portion of our cash flow from operations to pay the
principal of, and interest on, our indebtedness, that cash flow will not be available to fund future operations and capital expenditures. We cannot be
sure that our operating cash flow will be sufficient to fund our future capital expenditure and debt service requirements or to fund future
operations.




Our financing agreements contain restrictive
covenants with which we may not be able to comply.




We have entered into financing agreements that
contain restrictive financial covenants. These covenants require us, among other things, to maintain specified levels of net income, tangible net worth
and interest and leverage ratios, and also impose certain limitations on additional indebtedness, leases, guarantees and the payment of dividends. Our
ability to comply with restrictive financial covenants depends upon our future operating performance. Our future operating performance depends, in
part, on general industry conditions and other factors beyond our control. We cannot be sure that we will be able to comply with these covenants in the
future, and we may not be successful in renegotiating our financing agreements or otherwise obtaining relief from the covenants. If we default under
some or all of our financing agreements, our lenders may require that we immediately repay the full outstanding amount we owe to them. In such event,
we may have to pursue alternative financing arrangements. If we are not in compliance with financial covenants in our financing agreements at the end
of any fiscal quarter, our business, financial condition and results of operations could be materially adversely affected.


12

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We may not be able to successfully address
problems encountered in connection with any future acquisitions.




We expect to consider opportunities to acquire or
make investments in other technologies, products and businesses that could enhance our technical capabilities, complement our current products and
services, or expand the breadth of our markets. Acquisitions and strategic investments involve numerous risks, including:


| |  | problems maintaining uniform standards, procedures, controls and
policies;
|- |  | --------------------------------------------------------------------------

| |  | unanticipated costs associated with the acquisition, including
accounting charges and transaction expenses;
|- |  | -----------------------------------------------------------------------------------------------------------

| |  | problems assimilating the purchased technologies, products or
business operations;
|- |  | ----------------------------------------------------------------------------------

| |  | diversion of managements attention from our core
business;
|- |  | -----------------------------------------------------------

| |  | adverse effects on existing business relationships with
suppliers and customers;
|- |  | --------------------------------------------------------------------------------

| |  | risks associated with entering markets in which we have no or
limited prior experience; and
|- |  | -------------------------------------------------------------------------------------------

| |  | potential loss of key employees of acquired
organizations.
|- |  | ----------------------------------------------------------



If we fail to properly evaluate and execute
acquisitions and strategic investments, our management team may be distracted from our day-to-day operations, our business may be disrupted and our
operating results may suffer. In addition, if we finance acquisitions by issuing equity or convertible debt securities our existing shareholders would
be diluted.




We face risks from doing business
internationally.




We have manufacturing facilities in Thailand and
design, sales and customer support operations in the United Kingdom, Singapore, China and South Korea. Our business is subject to certain risks
inherent in international business, many of which are beyond our control. These risks include:


| |  | changes in local regulatory requirements, including restrictions
on product content;
|- |  | ------------------------------------------------------------------------------------

| |  | changes in the laws and policies affecting trade, investment and
taxes (including laws and policies relating to the repatriation of funds and to withholding taxes);
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | differing degrees of protection for intellectual
property;
|- |  | ----------------------------------------------------------

| |  | foreign labor issues;
|- |  | ---------------------

| |  | difficulties in coordinating and managing foreign
operations;
|- |  | -------------------------------------------------------------

| |  | potential cross border shipment delays;
|- |  | ---------------------------------------

| |  | instability of foreign economies and governments;
|- |  | -------------------------------------------------

| |  | cultural barriers;
|- |  | ------------------

| |  | wars and acts of terrorism; and
|- |  | -------------------------------

| |  | the spread of severe acute respiratory syndrome, or
SARS.
|- |  | ---------------------------------------------------------



Any of these factors could have a material adverse
effect on our business, financial condition and results of operations.




We face risks from fluctuations in the value
of foreign currency versus the U.S. dollar and the cost of currency exchange.




While we transact business predominantly in U.S.
dollars, a large portion of our sales and expenses are denominated in foreign currencies. Changes in the relation of foreign currencies to the U.S.
dollar will affect our cost of sales and operating margins and could result in exchange losses. To reduce the impact of certain foreign currency
fluctuations, we enter into short-term forward foreign currency exchange contracts in the regular course of business. The forward exchange contracts
generally require us to exchange Thailand baht for U.S. dollars or U.S. dollars for Thailand baht at maturity, at rates agreed to at inception of the
contracts. These contracts are not designed as hedges, therefore, the gains and losses on foreign currency transactions are included in income as
incurred. No assurance can be given that our strategies will prevent future currency fluctuations from having a material adverse effect on our
business, financial condition and results of operations.




A prolonged economic downturn could materially
harm our business.




Negative trends in the general economy, including
trends resulting from actual or threatened military action by the United States and threats of terrorist attacks on the United States and abroad, could
cause a decrease in consumer and business spending in general.


13

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We may not be able to maintain good relations
with our employees.




Our ability to conduct business would be impaired if
our workforce were to be unionized or if a significant number of our specialized employees were to leave and we could not replace them with comparable
personnel. Our business may be adversely affected if we need to adjust the size of our workforce due to fluctuating demand. The locations of our plants
and the broad span and technological complexity of our products and processes limit the number of satisfactory engineering and other candidates for key
positions.




We could incur substantial costs as a result
of violations of or liabilities under environmental laws.




Our operations are subject to laws and regulations
relating to the protection of the environment, including those governing the discharge of pollutants into the air or water, the management and disposal
of hazardous substances or wastes and the cleanup of contaminated sites. Some of our operations require environmental permits and controls to prevent
and reduce air and water pollution, and these permits are subject to modification, renewal and revocation by issuing authorities. We could incur
substantial costs, including cleanup costs, fines and civil or criminal sanctions and third-party claims for property damage and personal injury as a
result of violations of or liabilities under environmental laws or non-compliance with environmental permits.




Failure to achieve and maintain effective
internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock
price.




We are in the process of documenting and testing our
internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments
of the effectiveness of our internal controls over financial reporting and a report by our Independent Auditors addressing these assessments. During
the course of our testing we may identify deficiencies which we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley
Act for compliance with the requirements of Section 404. In addition, if we fail to maintain the adequacy of our internal controls, as such standards
are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective
internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Failure to achieve and maintain an effective
internal control environment could have a material adverse effect on our stock price.


ITEM 2.    PROPERTIES



At September 30, 2004, we owned an aggregate of
approximately 414,000 square feet of manufacturing and other space. Our significant facilities are as follows:


|Functions                                                           |  |  |  | Location (number of facilities) |  | Square Feet
|------------------------------------------------------------------- |  |  |  | ------------------------------- |  | -----------
|Executive
offices, research and development and circuit fabrication |  |  |  | Maple Plain, Minnesota (one)    |  |            
|Circuit
inspection and finishing                                    |  |  |  | Korat, Thailand (two)           |  |            
|Circuit
finishing and assembly, sales and support                   |  |  |  | Lamphun, Thailand (two)         |  |            
|Circuit
fabrication                                                 |  |  |  | Litchfield, Minnesota (five)    |  |            

ITEM 3.    LEGAL PROCEEDINGS



We are party to certain lawsuits in the ordinary
course of business. Other than with respect to the matter set forth below, we do not believe that these proceedings, individually or in the aggregate,
will have a material adverse effect on our business, financial condition or results of operations.




In July 2000, the Lemelson Medical, Education &
Research Foundation Limited Partnership (Lemelson) filed suit in the Federal District Court in the District of Arizona against us and
approximately 90 other defendants.


14

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The suit alleges that all of the defendants are
violating certain patents owned by Lemelson related to machine vision technologies. Lemelson alleges that certain of the equipment used in our business
utilizes this type of technology. We purchased this equipment from vendors whom we believe may have an obligation to indemnify us in the event that the
equipment infringes any third-party patent. The complaint seeks damages in an unspecified amount. We have answered the complaint denying that we
infringed any of these patents. Since the filing of our answer, the entire case has been stayed in order to allow an earlier-filed case to proceed.
During 2004, the earlier-filed case was decided against Lemelson. Lemelson has appealed that decision and the case to which we are a party remains
stayed pending the outcome of that appeal. We cannot be sure that we will prevail in this action and any adverse outcome could require us, among other
things, to pay royalties to Lemelson. We do not believe it is currently possible to calculate the potential for, or the extent of, any liabilities
resulting from this claim.


ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS



We did not submit any matter to a vote of our
security holders during the fourth quarter of the fiscal year covered by this Report.


ITEM 4A.    EXECUTIVE OFFICERS OF REGISTRANT



Below are the name, age, position and a brief
account of the business experience of each of our executive officers and key employees as of September 30, 2004.


|Name                 |  |  |  | Age |  | Position(s)                                           
|-------------------- |  |  |  | --- |  | ------------------------------------------------------
|Thomas W.
Haley      |  |  |  | 68  |  | Chairman and Director                                 
|William P.
Murnane   |  |  |  | 42  |  | President, Chief Executive Officer and Director       
|Thomas
Paulson       |  |  |  | 48  |  | Senior Vice President and Chief Financial Officer     
|Terry M.
Dauenhauer  |  |  |  | 51  |  | Senior Vice President and Chief Operating Officer     
|E. Thomas
Atchinson  |  |  |  | 55  |  | Vice President and Managing Director, Innovex Thailand
|Brian R.
Dahmes      |  |  |  | 44  |  | Vice President, Research and Development              
|Keith
Foerster       |  |  |  | 41  |  | Vice President, U.S. Operations                       
|Dennis R.
Huber      |  |  |  | 40  |  | Vice President, Quality Systems and Six Sigma         
|Douglas W.
Keller    |  |  |  | 46  |  | Vice President, Finance                               
|Kelly S.
Schuller    |  |  |  | 39  |  | Vice President, General Manager, New Ventures         
|Nicholas J.
Tomashot |  |  |  | 41  |  | Vice President, Finance, Innovex Thailand             



Thomas Haley founded our company and served
as President from 1972 to 1988 and Chief Executive Officer from 1988 through 1999. He has been a director and Chairman since our inception in
1972.




William Murnane was promoted to President and
Chief Operating Officer in July 1998 and to Chief Executive Officer in January 2000. He has been a director since 1999. Mr. Murnane joined us in July
1995 as Vice President. From June 1993 to June 1995, Mr. Murnane was Chief Operating Officer of Boutwell, Owens & Co., a private manufacturer of
packaging, in Fitchburg, Massachusetts. From June 1992 to June 1993, Mr. Murnane was Director of Operations for Uniform Printing & Supply, Inc. in
Acton, Massachusetts. Prior to that, he held various operating and corporate planning positions during a ten-year career at United Parcel Service. Mr.
Murnane is also a director of Applied Kinetics, Inc. and Transport Corporation of America.




Thomas Paulson joined us in February 2001 as
Senior Vice President and Chief Financial Officer. Prior to working with us, Mr. Paulson spent 19 years at The Pillsbury Company where he held a
variety of executive positions managing complex financial and business issues in multi-operational and multinational divisions, including Vice
President of Finance. Mr. Paulson also serves on the Board of Directors of Applied Kinetics, Inc. and Seneca Foods Corporation.




Terry Dauenhauer joined Innovex in January
2004 as Senior Vice President and Chief Operating Officer. Prior to joining Innovex, he spent five years with Seagate Technology as Vice President of
Thailand Operations and WW Product Performance. Prior to that, he was President and Director, AlphaSource Electronics, Alphatel, Alphatec Electronics
and NS Electronics from 1993 to 1997. Mr. Dauenhauer held various positions with National Semiconductor from 1987 to 1993, Fairchild Semiconductor from
1983 to1987 and Texas Instruments from 1976 to 1983.


15

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Thomas Atchison joined Innovex in September
2004 as Vice President/General Manager, Innovex (Thailand) Limited. Prior to joining us, Mr. Atchison was the Vice President and Chief Financial
Officer of Evans & Sutherland from 2003-2004 and Vice President and General Manager, Manufacturing, Service & Support for Evans &
Sutherland from 1998 to 2003. Prior to that Mr. Atchison was the Chief Operating Officer and Chief Financial Officer of Silicon Reality Inc. from 1997
to 1998. Prior to that Mr. Atchison held various positions with Alphatec from 1993 to 1997; National/Fairchild Semiconductor from 1984 to 1993; DSC
Communications from 1982 to 1984; and Texas Instruments from 1978 to 1982.




Brian Dahmes joined us in July 1997 as Plant
Manager. Mr. Dahmes was promoted to Director of Manufacturing in July 1998 and to Vice President, Quality in March of 1999. In November 1999, he was
promoted to Vice President, Managing Director Innovex (Thailand). In August 2001, Mr. Dahmes was named Vice President, Research and Development. From
1992 to 1995, Mr. Dahmes served as Process Engineering Manager for Sheldahl, Inc., and from 1995 to 1997 he was an Engineering Manager with Sheldahl,
Inc.




Keith Foerster joined us in May 1992 as a
Sales and Marketing Engineer. He has held the following positions with us: National Sales Manager  May, 1995 to July 1997; Director, Hard Disk
Drive Sales  July 1997 to August 1999; Senior Director, FSA Development  August 1999 to May 2000; Senior Director, Minnesota Operations
 May 2000 to June 2002; Senior Director and General Manager of the Data Storage Division  September 2001 to June 2003; Vice President and
General Manager of the Data Storage Division from June 2003 to June 2004; and Vice President, U.S. Operations from June 2004 to date. Previously, Mr.
Foerster held positions as a Sales Engineer at Quannon CAD Systems from September 1990 to May 1992 and as a Mechanical Design Engineer at Control Data
Corporation from May 1986 to September 1990.




Dennis Huber joined us in January 2001 as a
Senior Director and became General Manager of the FSA Division in September 2001. In June 2004, he was promoted to Vice President, Quality Systems and
Six Sigma. Prior to working with us, Mr. Huber held various engineering positions at Seagate Technology from 1993 to January 2001 and also held various
engineering positions at Hutchinson Technology from 1987 to 1993.




Douglas Keller joined us in January 1990 as
Corporate Controller. In May 1992, Mr. Keller was made an officer and in October 1996, he was promoted to Vice President, Finance. From July 1988 to
January 1990, Mr. Keller was Manager of Financial Accounting and Tax for UFE, Inc., a manufacturer of injection molded plastic components. From 1983 to
1988, Mr. Keller was a Senior Auditor for The Pillsbury Company. From 1980 to 1983, he was a Senior Accountant with Deloitte Haskins & Sells, a CPA
firm.




Kelly Schuller joined us in April 2001 as
Vice President, Strategic Marketing and New Business Development. In August 2001, Mr. Schuller was named General Manager of New Ventures. Prior to
joining us, Mr. Schuller spent five years at McKinsey & Company where he led a number of major strategy and business development engagements for
Fortune 500 companies. Before McKinsey, he worked for The Pillsbury Company in Strategic and Financial Planning as well as for Ernst & Young as a
certified public accountant.




Nick Tomashot joined us in April 2001 as
Director of Planning and Analysis. In June 2003, he was promoted to Vice President of Planning and Analysis and he was named Vice President, Finance
Thailand in July 2004. Prior to joining us, Mr. Tomashot was Director of Finance of Rooster.com from 2000 to March, 2001, and was Senior Finance
Manager of Diageo PLC, Pillsbury North America in the Non-Dough Foods Division from 1999 to 2000. Prior to that, Mr. Tomashot held various finance
positions at Proctor & Gamble from 1993 to 1999 and at The NCR Corporation from 1986 to 1991.


16

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PART II

|ITEM 5. |  | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- |  | ------------------------------------------------------------------------------------------------------------

Common Stock Information



Our common stock is traded on the National Market
System of the Nasdaq Stock Market under the symbol INVX. As of September 30, 2004, there were 19,108,469 shares of common stock
outstanding, held by approximately 624 shareholders of record.


Price Range of Common Stock



The table below sets forth the high and low sale
prices as reported on the Nasdaq National Market for the periods indicated.







|               |  |  |  | 2004 |        | 2003 | 
|-------------- |  |  |  | ---- | ------ | ---- | 
|
|First
Quarter  |  |  |  | $    | 13.360 |      | 
|Second
Quarter |  |  |  |      | 11.330 |      | 
|Third
Quarter  |  |  |  |      | 7.160  |      | 
|Fourth
Quarter |  |  |  |      | 4.590  |      | 

Dividend Policy



We have not declared a dividend on our common stock
since November 1999. We currently intend to retain all available funds, after repayment of the debt, to support our operations and to finance growth
and development of our business. We do not anticipate paying any cash dividends in the foreseeable future. Any future determination relating to the
dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including our future earnings, credit
facility restrictions, capital requirements, financial condition, future prospects and other factors as the board of directors may deem
relevant.


Securities Authorized for Issuance Under Equity Compensation
Plans



The following table sets forth information regarding
our equity compensation plans in effect as of September 30, 2004. Each of our equity compensation plans is an employee benefit plan as
defined by Rule 405 of Regulation C of the Securities Act of 1933.







|Plan category                                           |  |  |  | Number of shares of common stock to be issued upon exercise of
outstanding options, warrants and rights |           | Weighted-average exercise price of outstanding options,
warrants and rights |  | Number of shares of common stock remaining available for future
issuance under equity compensation plans(1)
|------------------------------------------------------- |  |  |  | ------------------------------------------------------------------------------------------------------- | --------- | --------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------
|Equity
compensation plans approved by stockholders:     |  |  |  |                                                                                                         | 2,008,218 |                                                                             |  | $                                                                                                          
|Equity
compensation plans not approved by stockholders: |  |  |  |                                                                                                         |          |                                                                             |  |                                                                                                            
|Total                                                   |  |  |  |                                                                                                         | 2,008,218 |                                                                             |  | $                                                                                                          

---

|(1) |  | Excludes shares of stock listed in first column.
|--- |  | ------------------------------------------------



The equity compensation plans approved by our
shareholders are the 1987 Employee Stock Option Plan, 1994 Stock Option Plan, and the 2000 Restricted Stock Plan. No shares remain available for future
awards under the 1983 Plan.




The Company also maintains an Employee Stock
Purchase Plan, participation in which is available to substantially all of the Companys employees. Participating employees may purchase the
Companys common stock at the end of each participation period at a purchase price equal to 85% of the lower of the fair market value
of


17

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the stock at the beginning or end of the period.
The six-month participation period runs from April 1 to September 30 and from October 1 to March 31 each year. Employees may contribute up to 10% of
their base compensation to the plan subject to certain IRS limits on stock purchases through the plan. This plan has been approved by the
Companys shareholders.


ITEM 6.    SELECTED CONSOLIDATED FINANCIAL
DATA



The following selected consolidated financial data
as of the end of each fiscal year has been derived from our consolidated financial statements for each of the years in the five-year period ended
September 30, 2004. The following information should be read in conjunction with Managements Discussion and Analysis of Financial Condition
and Results of Operations and the consolidated financial statements and related notes appearing elsewhere in this report.


|                                                |  |  |  | For the Years Ended September 30, |        
|----------------------------------------------- |  |  |  | --------------------------------- | -------
|
|Consolidated Statement of Operations Data:      |  |  |  |                                   |        
|Net
sales                                       |  |  |  | $                                 | 164,462
|Cost of
sales                                   |  |  |  |                                   | 139,843
|Gross
profit                                    |  |  |  |                                   | 24,619 
|Operating
expenses:                             |  |  |  |                                   |        
|Selling,
general and administrative             |  |  |  |                                   | 16,089 
|Engineering                                     |  |  |  |                                   | 7,731  
|Restructuring                                   |  |  |  |                                   | 13,601 
|Total
operating expenses                        |  |  |  |                                   | 37,421 
|Income (loss)
from operations                   |  |  |  |                                   | (12,802
|Interest and
other income (expense)             |  |  |  |                                   | (2,767 
|Income (loss)
before provision for income taxes |  |  |  |                                   | (15,569
|Benefit
(provision) for income taxes            |  |  |  |                                   | 4,515  
|Net income
(loss)                               |  |  |  | $                                 | (11,054
|Net income
(loss) per share:                    |  |  |  |                                   |        
|Basic                                           |  |  |  | $                                 | (0.75  
|Diluted                                         |  |  |  | $                                 | (0.75  
|Cash
dividends per share                        |  |  |  | $                                 | 0.04   

|                                        |  |  |  | As of September 30, |        
|--------------------------------------- |  |  |  | ------------------- | -------
|
|Consolidated Balance Sheet Data:        |  |  |  |                     |        
|Total
assets                            |  |  |  | $                   | 167,680
|Long-term
debt, less current maturities |  |  |  |                     | 21,003 
|Stockholders equity                    |  |  |  |                     | 96,396 

|ITEM 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|------- |  | -------------------------------------------------------------------------------------



You should read the following discussion of our
financial condition and results of operations in conjunction with the consolidated financial statements and notes to those statements included
elsewhere in this report. This discussion may contain forward-looking statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a result of certain factors, such as those set forth under Business  Risks Related to Our Businesss and elsewhere in this report.




We utilize a fiscal year that ends on the
Saturday nearest to September 30. For clarity of presentation, we have described all periods as if they end at the end of the calendar
quarter.


18

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Overview



We are a leading worldwide provider of flexible
circuit interconnect solutions to original equipment manufacturers (OEMs), in the electronics industry. We offer a full range of customized
flexible circuit applications and services from initial design, development and prototype to fabrication, assembly and test on a global basis. We
target high volume markets where miniaturization, form and weight are driving factors and flexible circuits are an enabling technology. Applications
for flexible circuits currently addressed by us include data storage devices such as hard disk drives (HDDs), flat panel displays
(FPD) including liquid crystal displays (LCDs) for mobile communication devices and large format plasma screens, tape drives
and printers. Our customers include 3M, Dell, Hitachi, HP, Maxtor, Medtronic, Philips, Quantum, SAE Magnetics (a subsidiary of TDK), Samsung, Seagate,
Staktek, StorageTek, Xerox and other leading electronic OEMs.


Net Sales and Revenue Recognition



We manufacture flexible circuits and perform certain
additional assembly and test functions on these flexible circuits based on customer specifications. We sell our products direct throughout the world,
primarily in North America, Europe and the Pacific Rim countries. We use non-exclusive sales representatives to augment our direct sales efforts, with
sales through distributors representing less than 7% of our total net sales for fiscal years 2004, 2003 and 2002. We recognize revenue from the sale of
our products upon shipment or delivery of our product to our customers, depending on the customer agreement or shipping terms. We store some inventory
in third party owned warehouses that are located close to customers manufacturing facilities. Sales from third party warehouses are recognized
upon the transfer of title and risk of loss, following the customers acknowledgment of the receipt of the goods.


Costs and Expenses



Cost of sales consists primarily
of:


| |  | material costs for raw materials and semi-finished components
used for assembly of our products;
|- |  | ------------------------------------------------------------------------------------------------

| |  | labor costs directly related to manufacture, assembly and
inspection of our products;
|- |  | -------------------------------------------------------------------------------------

| |  | costs of general utilities, production supplies and chemicals
consumed in the manufacturing processes;
|- |  | ------------------------------------------------------------------------------------------------------

| |  | costs related to the maintenance of our manufacturing equipment
and facilities;
|- |  | -------------------------------------------------------------------------------

| |  | costs related to material and product handling and
shipment;
|- |  | ------------------------------------------------------------

| |  | depreciation costs related to facilities, machinery and
equipment used to manufacture, assemble and inspect our products; and
|- |  | -----------------------------------------------------------------------------------------------------------------------------

| |  | salaries and overhead attributed to our supply chain, process
engineering and manufacturing personnel.
|- |  | ------------------------------------------------------------------------------------------------------



Selling, general and administrative expenses
primarily consist of:


| |  | salaries and related selling (commissions, travel, business
development and program management), administrative, finance, human resources, regulatory, information services and executive personnel
expenses;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | other significant expenses related to external accounting,
software maintenance and legal and regulatory fees; and
|- |  | ------------------------------------------------------------------------------------------------------------------

| |  | overhead attributed to our selling, general and administrative
personnel.
|- |  | -------------------------------------------------------------------------



Engineering expenses include costs associated with
the design, development and testing of our products and processes. These costs consist primarily of:


| |  | salaries and related development personnel expenses;
|- |  | ----------------------------------------------------

| |  | overhead attributed to our development and test engineering
personnel; and
|- |  | --------------------------------------------------------------------------

| |  | prototyping costs related to the development of new
products.
|- |  | -------------------------------------------------------------



Restructuring charges are those costs primarily
related to manufacturing facility closures, severance and product discontinuations. During the third quarter of fiscal 2004, we announced the planned
closure of our Maple Plain facility and the plan to discontinue the support of the FSA attachment process. In fiscal 2001, we recorded restructuring
charges related to closing our Chandler, Arizona facility and transferring manufacturing operations to our Minnesota and Thailand locations. Because we
initially underestimated the costs relating to this restructuring,


19

---



we recorded additional restructuring charges in
fiscal 2002 and 2003. As of March, 2003, the restructuring related to the closing of the Chandler facility was substantially complete.


Results of Operations



The following table sets forth certain operating
data as a percentage of net sales for the periods indicated:


|                                                |  |  |  | For the Years Ended September 30, |      
|----------------------------------------------- |  |  |  | --------------------------------- | -----
|
|Net
sales                                       |  |  |  |                                   | 100.0
|Cost of
sales                                   |  |  |  |                                   | 88.1 
|Gross
profit                                    |  |  |  |                                   | 11.9 
|Operating
expenses:                             |  |  |  |                                   |      
|Selling,
general and administrative             |  |  |  |                                   | 12.3 
|Engineering                                     |  |  |  |                                   | 4.2  
|Restructuring                                   |  |  |  |                                   | 0.7  
|Total
operating expenses                        |  |  |  |                                   | 17.2 
|Income (loss)
from operations                   |  |  |  |                                   | (5.3 
|Net interest
and other expense                  |  |  |  |                                   | (1.7 
|Income (loss)
before provision for income taxes |  |  |  |                                   | (7.0 
|Benefit
(provision) for income taxes            |  |  |  |                                   | 4.2  
|Net income
(loss)                               |  |  |  |                                   | (2.8 

Comparison of the Fiscal Years Ended September 30, 2004 and
2003

Net Sales



Our net sales were $156.0 million for the year ended
September 30, 2004, compared to $153.0 million for the year ended September 30, 2003, an increase of 2%. This increase was the result of higher sales
generated by disk drive, semiconductor packaging and flat panel display (FPD) applications being partially offset by decreases in revenue
from non-strategic consumer product lines. The increased disk drive sales were related to our improved Actuator Flex (AFC) market share as
additional AFC programs entered production. Semiconductor packaging net sales increased due to higher demand from our stacked memory customers in early
fiscal 2004. The FPD sales improvement was related to new FPD programs beginning to ramp late in the fiscal year.




Sales from the disk drive industry generated 78% of
our net sales for the year ended September 30, 2004, compared to 76% for the year ended September 30, 2003, sales from semiconductor packaging
applications were 9% compared to 7%, FPD application net sales were 7% versus 5%, network system application sales were 4% compared to 6% and sales
from other industry applications were 2% for the year ended September 30, 2004 versus 6% for the year ended September 30, 2003.




We expect net sales for fiscal 2005 to improve as we
continue to benefit from a significant number of new FPD program qualifications entering production and additional program and customer qualifications
for our disk drive AFC products. This anticipated increase should more than offset an expected decrease in net sales from FSA products as our FSA
customer transitions to an alternative technology for a portion of their next generation programs.


Gross Profit



Our gross profit was $18.0 million for the fiscal
year ended September 30, 2004 compared to $20.9 million for the fiscal year ended September 30, 2003, a decrease of 14%. Our gross margin for the
fiscal year ended September 30, 2004 decreased to 12%, compared to 14% for the fiscal year ended September 30, 2003. The decrease in gross margin was
primarily related to a higher fixed cost structure put in place to meet higher expected demand for AFC and FPD products. Revenue from AFC and FPD
products was lower than expected due to inventory corrections in the disk drive industry and a customer delay of the production ramp up of new FPD
programs resulting in higher than expected unabsorbed overhead expenses.


20

---



We anticipate that gross margins in fiscal 2005 will
improve as net sales are expected to increase which will result in better utilization of our fixed cost structure. The improved utilization should more
than offset the impact of an expected increase in the material content of cost of goods sold due to anticipated higher levels of assembly related net
sales.


Selling, General and Administrative



Selling, general and administrative expenses for the
fiscal year ended September 30, 2004 were $17.8 million, virtually unchanged as compared to $17.9 million for the fiscal year ended September 30, 2003.
As a percentage of net sales, selling, general and administrative expenses were 11% in fiscal 2004 and 12% for the fiscal year ended September 30,
2003. As compared to fiscal 2003, increased fiscal 2004 spending for Sarbanes Oxley related consulting and higher payroll costs were offset by lower
depreciation costs and training costs related to implementation of the company-wide Six Sigma program during fiscal 2003.




Selling, general and administrative expenses for
fiscal 2005 are expected to decrease as a percentage of net sales due to payroll cost reductions made as part of the June 2004 restructuring and
anticipated increased net sales in fiscal 2005.


Engineering



Engineering expenses for the fiscal year ended
September 30, 2004 were $6.6 million, compared to $6.5 million for the fiscal year ended September 30, 2003, an increase of 2%. The increase in fiscal
2004 engineering expenses was primarily due to increased spending on qualifying products and processes for new applications including flat panel
displays and inkjet printers and other high-end flexible circuit technology development related to new products. As a percentage of net sales,
engineering expenses were 4% of sales for both the fiscal year ended September 30, 2004 and 2003.




Engineering expenses for fiscal 2005 are expected to
decrease as a percentage of net sales due to an expected increase in sales while engineering expenses are expected to remain flat.


Restructuring



During the third quarter of fiscal 2004, we
announced the planned closure of our Maple Plain facility and the plan to discontinue the support of the FSA attachment process. Related to this
restructuring, we recorded asset impairment charges of $13.1 million and restructuring charges of $1.7 million during the last two quarters of fiscal
2004. The assets that were impaired included the Maple Plain facility and related equipment and equipment used in the FSA attachment process. The fair
value of these assets was determined using quoted market prices where available, appraised values or estimated future cash flows where more definitive
values were not available.




In order to reduce our cost structure, we plan to
close our Maple Plain facility and consolidate its operations with our Lamphun, Thailand and Litchfield, Minnesota facilities. In addition, we plan to
discontinue supporting the FSA attachment process in order to utilize our resources in other areas with higher expected returns. Excluding asset
impairment charges, restructuring charges are expected to be approximately $7 million. The $7 million is expected to be comprised of $1.6 million for
one-time termination benefits, $0.4 million for contract termination costs and $5 million for other moving and closing costs associated with the
consolidation of the Maple Plain location with our other locations. Restructuring charges of $1.7 million were recorded in the last two quarters of
fiscal 2004. These charges were comprised of $926,000 for one-time termination benefits, $404,000 related to contract termination costs and $350,000
related to moving and closing costs. The remaining charges are expected to be incurred in fiscal 2005.




Restructuring charges for the fiscal year ended
September 30, 2003 were $750,000. In fiscal 2003, the charges were recorded due to an increase in the estimate of the leased Chandler, Arizona facility
disposition costs, primarily to buy out the remainder of the Chandler, Arizona facility lease through its June 2003 termination. As of September 30,
2003, the restructuring was substantially complete.


21

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Net Interest and Other Expense



Net interest expenses were $0.7 million in the
fiscal year ended September 30, 2004, compared to $2.0 million for the fiscal year ended September 30, 2003, a decrease of 68%. Interest expense
decreased in 2004 primarily due to average interest-bearing debt being $8.0 million lower for the twelve months ended September 30, 2004 compared to
the twelve months ended September 30, 2003. Net other income was $329,000 in the fiscal year ended September 30, 2004 as compared to net other expense
of $234,000 in the fiscal year ended September 30, 2003. The increase was the result of foreign currency exchange gains being incurred in fiscal 2004
while a foreign currency exchange loss was generated in fiscal 2003 and the write off of loan origination fees related to the U.S. based credit
facility that was paid off in the fourth quarter of fiscal 2003.


Income Taxes



Income tax benefit for the fiscal year ended
September 30, 2004 was $4.1 million, compared to $3.6 million for the fiscal year ended September 30, 2003. The tax benefit for fiscal 2004 was
calculated at a rate lower than the statutory federal rate primarily due to the exclusion of income generated from our foreign operating corporation
and the exclusion of restructuring charges. We have determined that it is more likely than not that we will be able to utilize the tax benefit in the
future.


Comparison of the Fiscal Years Ended September 30, 2003 and
2002

Net Sales



Our net sales were $153.0 million for the year ended
September 30, 2003, compared to $134.7 million for the year ended September 30, 2002, an increase of 14%. This increase was due to higher sales
generated by disk drive, semiconductor packaging and FPD applications. The increased disk drive sales were related to our improved FSA market share as
our largest customer in the disk drive industry transitioned to the 80 gigabyte (GB) per platter technology platform. Semiconductor
packaging net sales increased due to higher demand from our stacked memory customers. The FPD sales improvement was related to the continued ramp-up of
the new FPD program announced during the first quarter of fiscal 2003.




Sales from the disk drive industry generated 76% of
our net sales for the year ended September 30, 2003, compared to 74% for the year ended September 31, 2002, sales from semiconductor packaging
applications were 7%, compared to 3%, network system application sales were 6% for both years, FPD net sales were 5% versus 0%, consumer application
sales were 5% versus 14% and sales from other industry applications were 1% for the year ended September 30, 2003 versus 3% for the year ended
September 30, 2002.


Gross Profit



Our gross profit was $20.9 million for the fiscal
year ended September 30, 2003, compared to $16.1 million for the fiscal year ended September 30, 2002, an increase of 30%. Our gross margin for the
fiscal year ended September 30, 2003 increased to 14%, compared to 12% for the fiscal year ended September 30, 2002. The increase in gross margin was
primarily due to higher net sales increasing our fixed cost leverage and efficiency improvements related to Six Sigma and other initiatives. These
improvements offset the incremental start-up and tooling costs related to new product introductions and product mix changes resulting from a lower
portion of sales from HIF, one of our older products, within our product mix that impacted the first half of fiscal 2003. We experienced a significant
product transition during the second quarter of fiscal 2003, converting approximately 70% of our products to new designs. The product mix for the first
half of fiscal 2003 also had an increased share of FSA sales with higher material pass through content related to the suspension material used in the
FSA product. The fiscal 2002 product mix included a higher share of our HIF product, which does not include the suspension related pass through
material.


Selling, General and Administrative



Selling, general and administrative expenses for the
fiscal year ended September 30, 2003 were $17.9 million, compared to $16.6 million in the fiscal year ended September 30, 2002, an increase of 8%. As a
percentage of net sales, selling, general and administrative expenses were 12% for both the fiscal year ended September 30, 2003


22

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and 2002. The increase in fiscal 2003 spending
was primarily due to increased commissions and royalties resulting from the increase in net sales, consulting and training costs related to
implementation of the company-wide Six Sigma program and severance costs of approximately $400,000 recorded during the first quarter of fiscal 2003
related to efforts to increase operational efficiency by consolidating from four marketing groups to three.


Engineering



Engineering expenses for the fiscal year ended
September 30, 2003 were $6.5 million, compared to $5.7 million for the fiscal year ended September 30, 2002, an increase of 14%. The increase in fiscal
2003 engineering expenses was primarily due to increased spending on new product development, further spending related to FSA and FgSA technology
improvements, qualifying products and processes for new applications including FPD displays, printers, semiconductor packaging substrates and other
high-end flexible circuit technology development related to new products. As a percentage of net sales, engineering expenses were 4% of sales for both
the fiscal year ended September 30, 2003 and 2002.


Restructuring



Restructuring charges for the fiscal year ended
September 30, 2003 were $750,000, compared to $950,000 for the fiscal year ended September 30, 2002. In fiscal 2003, the charges were recorded due to
an increase in the estimate of the leased Chandler, Arizona facility disposition costs, primarily to buy out the remainder of the Chandler, Arizona
facility lease through its June 2003 termination. In the fiscal year ended September 30, 2002, additional charges were also recorded due to an increase
in the estimate of the leased Chandler, Arizona facility disposition costs and an additional accrual was recorded to complete the restructuring related
to the closing of our Mexican facility. As of September 30, 2003, the restructuring was substantially complete.


Net Interest and Other Expense



Net interest expenses were $2.0 million in the
fiscal year ended September 30, 2003, compared to $2.6 million for the fiscal year ended September 30, 2002, a decrease of 22%. Interest expense
decreased in 2003 primarily due to average interest-bearing debt being $11.0 million lower for the twelve months ended September 30, 2003 compared to
the twelve months ended September 30, 2002. Net other expense was $234,000 in the fiscal year ended September 30, 2003 as compared to net other income
of $351,000 in the fiscal year ended September 30, 2002. The decrease was the result of foreign currency exchange losses being incurred in fiscal 2003
while a foreign currency exchange gain was generated in fiscal 2002 and the write off of the loan origination fees related to the U.S. based credit
facility which was paid off in the fourth quarter of fiscal 2003.


Income Taxes



Income tax benefit for the fiscal year ended
September 30, 2003 was $3.6 million, compared to $5.6 million for the fiscal year ended September 30, 2002. We have determined that it is more likely
than not that we will be able to utilize the tax benefit in the future. During the second quarter of fiscal 2002, approximately $1.7 million of the tax
benefit recorded was due to a reduction of the deferred tax allowance. The deferred tax allowance was reduced as a result of the estimated improvement
in deferred tax asset recoverability in light of the receipt of a $13.2 million tax refund resulting from the carry-back of the fiscal 2001 net
operating loss.


Critical Accounting Policies



Managements Discussion and Analysis of
Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and
judgments that affect the reported amounts of assets, liabilities, sales and expenses and related disclosure of contingent assets and liabilities. On
an on-going basis, estimates are evaluated based on historical experience and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates.


23

---



We apply the following critical accounting policies
in the preparation of our consolidated financial statements:


| |  | Allowance for Excess and Obsolete
Inventory.    Inventories, which are composed of raw materials, work in process and finished goods, are valued at the lower of
cost or market with cost being determined by the first-in, first-out method. On a periodic basis, we analyze the level of inventory on hand, our cost
in relation to market value and estimated customer requirements to determine whether write-downs for excess or obsolete inventory are required. Actual
customer requirements in any future periods are inherently uncertain and thus may differ from estimates. If actual or expected requirements were
significantly different than the established reserves, a revision to the obsolescence allowance would be recorded in the period in which such a
determination was made.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Goodwill.    We have determined
goodwill relates to one reporting unit for purposes of impairment testing. Goodwill and other intangible assets with indefinite lives are tested for
impairment annually or whenever an impairment indicator arises. If events or circumstances change, including reductions in anticipated cash flows
generated by operations, goodwill could become impaired and result in a charge to earnings.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Deferred Taxes.    We account for
income taxes using the liability method. Deferred income taxes are provided for temporary differences between the financial reporting and tax bases of
assets and liabilities. A valuation allowance is set up where the realization of any deferred taxes becomes less likely than not to occur. We analyze
the valuation allowance periodically which may result in income tax expense being different than statutory rates.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Revenue Recognition.    We make
electronic components (flexible circuits) based on customer specifications. Our revenue recognition policy is consistently applied regardless of sales
channels utilized and product destination. We have an implied warranty that the products meet our customers specification. Credits only are
issued for customer returns. In recognizing revenue in any period, we apply the provisions of SEC Staff Accounting Bulletin 101, Revenue
Recognition. Revenue from product sales is recognized when persuasive evidence of an arrangement exists, the product has been delivered, the fee
is fixed and determinable and collection of the resulting receivable is reasonably assured. For all sales, a binding purchase order is used as evidence
of an arrangement. We recognize revenue from the sale of our products upon shipment or delivery of our products to our customers, depending upon the
customer agreement or shipping terms. We also store inventory in warehouses (JIT hubs  third party owned warehouses) that are located close to
our customers manufacturing facilities. Revenue is recognized on sales from JIT hubs upon the transfer of title and risk of loss which follows
our customers acknowledgement of the receipt of the goods.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Liquidity and Capital Resources



We have historically financed our operations
primarily through cash from operating activities, sales of equity securities, bank credit facilities and employee stock option exercises. Cash and
equivalents were $14.4 million at September 30, 2004 and $21.6 million at September 30, 2003.




Net cash used by operating activities was $4,000 in
the fiscal year ended September 30, 2004, compared to net cash provided by operating activities of $1.8 million in the fiscal year ended September 30,
2003. For fiscal 2004, net cash used by operating activities was the result of increases in accounts receivable, inventory and other assets more than
offsetting increased accounts payable and the net of the pretax loss and non-cash charges for restructuring and depreciation. Accounts receivable,
inventory and accounts payable all increased as a result of the FPD program ramp ups beginning near the end of fiscal 2004.




For the fiscal year ended September 30, 2003, net
cash provided by operating activities was primarily due to non-cash charges for restructuring and depreciation more than offsetting the pre-tax loss
for the period and the increase in accounts receivable at September 30, 2003 from September 30, 2002 as a result of the increased level of sales at the
end of September 30, 2003. Net cash provided by operating activities was also benefited from an increase in accounts payable for the same period as a
result of the increased manufacturing activity levels and by decreases in inventory and the receipt of a tax refund. A decrease in accrued liabilities
resulting from the payment of accrued restructuring charges during the period reduced the net cash provided by operating activities.




For fiscal 2002, net cash provided by operating
activities was primarily due to the receipt of a $13.2 million tax refund and non-cash charges for depreciation and deferred tax benefits more than
offsetting the net loss for the


24

---



period. Net cash provided by operating
activities was also benefited by decreases in inventory and accounts receivable more than offsetting a decrease in accounts payable for the period. A
decrease in accrued liabilities resulting from the payment of accrued restructuring charges during the period significantly reduced the net cash
provided by operating activities.




Net cash used in investing activities was $11.0
million in the fiscal year ended September 30, 2004, compared to $4.9 million in fiscal 2003 and $1.1 million in fiscal 2002. Fiscal 2004 net cash used
in investing activity was the result of capital expenditures including capacity increases for selected processes related to the expected increase in
FPD and AFC sales, new equipment to support the next FSA generation product, Thailand capability expansion and upgrades of current capabilities. In the
fiscal year ended September 30, 2003, net cash used in investing activities was attributed to the purchase of test equipment and equipment to expand
capacity in selected areas. Fiscal 2002 net cash used in investing activities was due to capital expenditures of $3.5 million being partially offset by
proceeds from the sale of our Mexican facility. Fiscal 2002 capital expenditures primarily included technological upgrades, selected capacity increases
and facility improvements.




Net cash provided by financing activities was $3.8
million in the fiscal year ended September 30, 2004, compared to net cash provided by financing activities of $22.4 million in fiscal 2003 and net cash
used in financing activities was $14.2 million in fiscal 2002. Fiscal 2004 net cash provided by financing activities was primarily due to proceeds from
our new Thailand long and short-term credit facilities more than offsetting scheduled payments made under our existing credit facilities. During the
fiscal year ended September 30, 2003, net cash provided by financing activities was primarily the result of net proceeds from a follow-on stock
offering of $39.5 million partially offset by the pay down of interest bearing debt. Fiscal 2002 net cash used by financing activities was due to
reductions in the outstanding balances under our Thailand packing credit facilities, scheduled payments under our U.S. and Thailand long-term credit
facilities and an additional $1.6 million payment made under our U.S. long-term credit facility.




In June 2004, we entered into a new credit facility
with Bank of Ayudhya Public Company Limited (BAY) and The Industrial Finance Corporation of Thailand (IFCT) which expanded the existing credit facility
with these banks. The long-term facilities were increased by 1,060 million baht, the packing credit was increased by 270 million baht and the
short-term working capital facility was increased by 20 million baht. The facility is now comprised of a 660 million baht long-term facility, a 400
million baht long-term facility, a 590 million baht long-term facility, a 220 million baht facility, packing credit facilities totaling 1,070 million
baht, short-term working capital facilities totaling 90 million baht and a 10 million baht overdraft facility. The Thailand facilities are secured by
certain receivables, inventory and assets held by us in Thailand. As of September 30, 2004, approximately $16.1 million was outstanding under the
Thailand credit facilities. Total unused availability under the Thailand credit facilities as of September 30, 2004 was approximately $45 million, of
which $29 million was related to the packing credit and working capital facilities and $16 million was available under the long term facilities to fund
capital equipment expansions in Thailand.




We believe that with the existing Thailand credit
facilities, cash generated from operations and the proceeds from a secondary offering of our common stock received on August 4, 2003, we will have
adequate funds to support projected working capital and capital expenditures for the next twenty-four months. We are considering alternatives for
generating additional working capital and long-term financing and will continue to pursue financing opportunities to better leverage our assets. Our
financing needs and the financing alternatives available to us are subject to change depending on, among other things, general economic and market
conditions, changes in industry buying patterns, customer acceptance of our FSA, AFC, stacked memory flex and FPD flex products and cash flow from
operations.


25

---

Contractual Obligations



The table below discloses a summary of the
Companys specified contractual obligations at September 30, 2004 (in thousands):


|                           |  |  |  | Under 1 Year |       | 1 to 3 Years |  | 3 to 5 Years |       | After 5 Years |  | Total
|-------------------------- |  |  |  | ------------ | ----- | ------------ |  | ------------ | ----- | ------------- |  | -----
|Long-term
Debt Obligations |  |  |  | $            | 6,252 |              |  | $            | 5,461 |               |  | $    
|Operating
Leases           |  |  |  |              | 1,167 |              |  |              | 1,478 |               |  |      
|Total                      |  |  |  | $            | 7,419 |              |  | $            | 6,939 |               |  | $    

Recent Accounting Pronouncements



There have been no accounting pronouncements
relevant to us since the end of fiscal 2003.


Forward Looking Statements



Statements included in this Managements
Discussion and Analysis of Financial Condition and Results of Operations, elsewhere in this report and in future filings by the Company with the SEC,
except for the historical information contained herein and therein, are forward-looking statements that involve risks and uncertainties.
These risks and uncertainties are set forth under Business  Risks Related to Our Business in this Annual Report and include the
timely availability and acceptance of new products including the FPD flexible circuits, next generation products for disk drive and semiconductor
packaging substrate applications, the impact of competitive products and pricing, interruptions in the operations of the Companys single source
suppliers, changes in manufacturing efficiencies and other risks detailed from time to time in the Companys reports filed with the Securities and
Exchange Commission. In addition, a significant portion of the Companys revenue is generated from the disk drive, semiconductor packaging
substrates, consumer electronics and data storage industries and the global economic downturn has had and continued economic softness will continue to
have an adverse impact on the Companys operations. The Company disclaims any obligation subsequently to revise any forward-looking statements to
reflect subsequent events or circumstances or the occurrence of unanticipated events.


ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK



The following discusses our exposure to market risk
related to changes in interest rates and foreign currency exchange rates. These exposures may change over time as business practices evolve and could
have a material adverse impact on our business, financial condition and results of operations.




Our earnings and cash flows are subject to
fluctuations due to changes in foreign currency exchange rates. While we transact business predominately in U.S. dollars a portion of our sales and
expenses are denominated in foreign currencies. Changes in the relation of foreign currencies to the U.S. dollar will affect our cost of sales and
operating margins and could result in exchange gains or losses. To reduce the impact of certain foreign currency fluctuations, we enter into short-term
forward foreign currency exchange contracts in the regular course of business to manage our risk exposure, not as speculative instruments. Typically,
these contracts have maturities of 6 months or less. The forward exchange contracts generally require us to exchange Thailand baht for U.S. dollars or
U.S. dollars for Thailand baht at maturity, at rates agreed to at inception of the contracts. These contracts are not designated as hedges, therefore,
the gains and losses on foreign currency transactions are included in income.




We periodically review the outlook for expected
currency exchange rate movements as well as the policy on desired future foreign currency cash flow positions (long, short or balanced) for those
currencies in which we have significant activity. Expected future cash flow positions and strategies are continuously monitored. At September 30, 2004,
we had open forward exchange contracts to buy Thailand baht maturing December 13 and 14, 2004 with notional amounts totaling 300,000,000 Thailand baht
(approximately $7.3 million U.S. dollars.) No assurance can be given that our strategies will prevent future currency fluctuations from adversely
affecting our business, financial condition and results of operations.




We are exposed to interest rate risk as a large
portion of our interest-bearing debt is subject to interest rates which fluctuate with changes in market interest rates or are periodically reset based
on market interest rates. A large change in market interest rates could have an adverse impact on our business, financial condition and results of
operations.


26

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS






|                                                                                                      |  |  |  | Page
|----------------------------------------------------------------------------------------------------- |  |  |  | ----
|Report of
Independent Registered Public Accounting Firm                                               |  |  |  |     
|Consolidated
Balance Sheets as of September 30, 2004 and 2003                                         |  |  |  |     
|Consolidated
Statements of Operations for the years ended September 30, 2004, 2003 and 2002           |  |  |  |     
|Consolidated
Statements of Stockholders Equity for the years ended September 30, 2004, 2003 and 2002 |  |  |  |     
|Consolidated
Statements of Cash Flows for the years ended September 30, 2004, 2003 and 2002           |  |  |  |     
|Notes to
Consolidated Financial Statements                                                            |  |  |  |     
|Quarterly
Financial Data (unaudited)                                                                  |  |  |  |     

27

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of
Directors Innovex, Inc.




We have audited the accompanying consolidated
balance sheets of Innovex, Inc. and Subsidiaries (the Company) as of September 30, 2004 and 2003, and the related consolidated statements of
operations, stockholders equity, and cash flows for each of the three years in the period ended September 30, 2004. These consolidated financial
statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.




We conducted our audits in accordance with standards
of the Public Company Accounting Oversight Board (United States.) Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our
opinion.




In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the consolidated financial position of Innovex, Inc. and Subsidiaries as of
September 30, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended
September 30, 2004, in conformity with accounting principles generally accepted in the United States of America.




/s/ GRANT
THORNTON LLP


Minneapolis, Minnesota October 27, 2004

28

---



INNOVEX, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS






|                                                                                                                         |  |  |  | As of September 30, |            
|------------------------------------------------------------------------------------------------------------------------ |  |  |  | ------------------- | -----------
|
|ASSETS                                                                                                                  
|Current
assets:                                                                                                          |  |  |  |                     |            
|Cash and
equivalents                                                                                                     |  |  |  | $                   | 14,422,060 
|Accounts
receivable, less allowance for doubtful accounts of $375,000 (2003  $343,000)                                  |  |  |  |                     | 27,247,622 
|Inventories                                                                                                              |  |  |  |                     | 12,222,703 
|Deferred
income taxes                                                                                                    |  |  |  |                     | 915,559    
|Other current
assets                                                                                                     |  |  |  |                     | 2,696,645  
|Total current
assets                                                                                                     |  |  |  |                     | 57,504,589 
|Property,
plant and equipment  at cost:                                                                                 |  |  |  |                     |            
|Land and land
improvements                                                                                               |  |  |  |                     | 3,392,253  
|Buildings and
leasehold improvements                                                                                     |  |  |  |                     | 30,094,120 
|Machinery and
equipment                                                                                                  |  |  |  |                     | 68,315,799 
|Office
furniture and fixtures                                                                                            |  |  |  |                     | 1,131,625  
|                                                                                                                         |  |  |  |                     | 102,933,797
|Less
accumulated depreciation and amortization                                                                           |  |  |  |                     | 49,395,781 
|Net property,
plant and equipment                                                                                        |  |  |  |                     | 53,538,016 
|Goodwill                                                                                                                 |  |  |  |                     | 3,000,971  
|Deferred
income taxes  long-term                                                                                        |  |  |  |                     | 12,974,692 
|Other
assets                                                                                                             |  |  |  |                     | 2,728,563  
|Total
assets                                                                                                             |  |  |  | $                   | 129,746,831
|                                                                                                                         |  |  |  |                     |            
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                    
|Current
liabilities:                                                                                                     |  |  |  |                     |            
|Current
maturities of long-term debt                                                                                     |  |  |  | $                   | 6,251,784  
|Line of
credit                                                                                                           |  |  |  |                     |           
|Accounts
payable                                                                                                         |  |  |  |                     | 20,540,924 
|Accrued
compensation                                                                                                     |  |  |  |                     | 2,702,072  
|Other accrued
liabilities                                                                                                |  |  |  |                     | 2,148,328  
|Total current
liabilities                                                                                                |  |  |  |                     | 31,643,108 
|Long-term
debt, less current maturities                                                                                  |  |  |  |                     | 11,021,678 
|Commitments
and contingencies                                                                                            |  |  |  |                     |           
|Stockholders equity:                                                                                                    |  |  |  |                     |            
|Common stock,
$.04 par value; 30,000,000 shares authorized, 19,108,469 shares issued and outstanding (2003  18,906,739) |  |  |  |                     | 764,339    
|Capital in
excess of par value                                                                                           |  |  |  |                     | 60,771,551 
|Retained
earnings                                                                                                        |  |  |  |                     | 25,546,155 
|Total
stockholders equity                                                                                               |  |  |  |                     | 87,082,045 
|Total
liabilities and stockholders equity                                                                               |  |  |  | $                   | 129,746,831

See accompanying notes to consolidated financial statements.

29

---

INNOVEX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                |  |  |  | For the Years Ended September 30, |            
|----------------------------------------------- |  |  |  | --------------------------------- | -----------
|
|Net
sales                                       |  |  |  | $                                 | 155,945,623
|Costs and
expenses:                             |  |  |  |                                   |            
|Cost of
sales                                   |  |  |  |                                   | 137,975,563
|Selling,
general and administrative             |  |  |  |                                   | 17,780,747 
|Engineering                                     |  |  |  |                                   | 6,613,205  
|Restructuring
charges                           |  |  |  |                                   | 14,788,867 
|Interest
expense                                |  |  |  |                                   | 820,701    
|Interest
income                                 |  |  |  |                                   | (156,186   
|Other
(income) expense, net                     |  |  |  |                                   | (328,934   
|                                                |  |  |  |                                   | 177,493,963
|Income (loss)
before provision for income taxes |  |  |  |                                   | (21,548,340
|Benefit
(provision) for income taxes            |  |  |  |                                   | 4,052,429  
|Net income
(loss)                               |  |  |  | $                                 | (17,495,911
|Net income
(loss) per share:                    |  |  |  |                                   |            
|Basic                                           |  |  |  | $                                 | (0.92      
|Diluted                                         |  |  |  | $                                 | (0.92      
|Weighted
average shares outstanding:            |  |  |  |                                   |            
|Basic                                           |  |  |  |                                   | 19,027,508 
|Diluted                                         |  |  |  |                                   | 19,027,508 

See accompanying notes to consolidated financial statements.

30

---

INNOVEX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
STOCKHOLDERS EQUITY

For the Years Ended September 30, 2004, 2003 and 2002

|                                                    |  |  |  | Common Stock |         | Capital in Excess of Par Value |  | Retained Earnings |            | Total Stockholders Equity
|--------------------------------------------------- |  |  |  | ------------ | ------- | ------------------------------ |  | ----------------- | ---------- | --------------------------
|Balance at
October 1, 2001                          |  |  |  | $            | 601,770 |                                |  | $                 | 17,736,455 |                           
|Shares issued
through exercise of stock options     |  |  |  |              | 364     |                                |  |                   | 16,562     |                           
|Shares issued
through employee stock purchase plan  |  |  |  |              | 2,197   |                                |  |                   | 62,624     |                           
|Net
loss                                            |  |  |  |              |        |                                |  |                   |           |                           
|Balance at
September 30, 2002                       |  |  |  |              | 604,331 |                                |  |                   | 17,815,641 |                           
|Shares issued
through exercise of stock options     |  |  |  |              | 10,788  |                                |  |                   | 1,964,496  |                           
|Tax benefits
derived from exercise of stock options |  |  |  |              |        |                                |  |                   | 490,326    |                           
|Shares issued
through employee stock purchase plan  |  |  |  |              | 3,151   |                                |  |                   | 154,208    |                           
|Shares issued
through offering                      |  |  |  |              | 138,000 |                                |  |                   | 39,323,750 |                           
|Net
loss                                            |  |  |  |              |        |                                |  |                   |           |                           
|Balance at
September 30, 2003                       |  |  |  |              | 756,270 |                                |  |                   | 59,748,421 |                           
|Shares issued
through exercise of stock options     |  |  |  |              | 5,933   |                                |  |                   | 581,556    |                           
|Tax benefits
derived from exercise of stock options |  |  |  |              |        |                                |  |                   | 180,348    |                           
|Shares issued
through employee stock purchase plan  |  |  |  |              | 2,136   |                                |  |                   | 261,226    |                           
|Net
loss                                            |  |  |  |              |        |                                |  |                   |           |                           
|Balance at
September 30, 2004                       |  |  |  | $            | 764,339 |                                |  | $                 | 60,771,551 |                           

See accompanying notes to consolidated financial statements.

31

---

INNOVEX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                         |  |  |  | For the Years Ended September 30, |            
|---------------------------------------------------------------------------------------- |  |  |  | --------------------------------- | -----------
|
|Cash Flows
From Operating Activities:                                                    |  |  |  |                                   |            
|Net income
(loss)                                                                        |  |  |  | $                                 | (17,495,911
|Adjustments
to reconcile net income (loss) to net cash provided by operating activities: |  |  |  |                                   |            
|Depreciation
and amortization                                                            |  |  |  |                                   | 11,286,006 
|Restructuring
charges                                                                    |  |  |  |                                   | 14,788,867 
|Other
non-cash items                                                                     |  |  |  |                                   | (231,487   
|Changes in
operating assets and liabilities, net of business acquisition:                |  |  |  |                                   |            
|Accounts
receivable, net                                                                 |  |  |  |                                   | (2,797,914 
|Inventories                                                                              |  |  |  |                                   | (3,587,727 
|Deferred
income taxes                                                                    |  |  |  |                                   | (5,177,710 
|Income
taxes                                                                             |  |  |  |                                   | 122,416    
|Other current
assets                                                                     |  |  |  |                                   | (1,203,426 
|Accounts
payable                                                                         |  |  |  |                                   | 4,735,813  
|Other current
and long-term liabilities                                                  |  |  |  |                                   | (442,710   
|Net cash
provided (used in) operating activities                                         |  |  |  |                                   | (3,783     
|Cash Flows
From Investing Activities:                                                    |  |  |  |                                   |            
|Capital
expenditures                                                                     |  |  |  |                                   | (11,097,116
|Proceeds from
sale of assets                                                             |  |  |  |                                   | 69,442     
|Net cash used
in investing activities                                                    |  |  |  |                                   | (11,027,674
|Cash Flows
From Financing Activities:                                                    |  |  |  |                                   |            
|Principal
payments on long-term debt                                                     |  |  |  |                                   | (6,870,456 
|Net
(payments) proceeds on line of credit                                                |  |  |  |                                   |           
|Issuance of
long-term debt                                                               |  |  |  |                                   | 9,866,361  
|Proceeds from
offering                                                                   |  |  |  |                                   |           
|Proceeds from
exercise of stock options                                                  |  |  |  |                                   | 587,489    
|Proceeds from
employee stock purchase plans                                              |  |  |  |                                   | 263,362    
|Net cash
provided by (used in) financing activities                                      |  |  |  |                                   | 3,846,756  
|Increase
(decrease) in cash and equivalents                                              |  |  |  |                                   | (7,184,701 
|Cash and
equivalents at beginning of year                                                |  |  |  |                                   | 21,606,761 
|Cash and
equivalents at end of year                                                      |  |  |  | $                                 | 14,422,060 

Supplemental Disclosures:

Cash paid for interest was approximately $879,000; $2,343,000; and $2,834,000 in
2004, 2003 and 2002.

Income tax payments were approximately $950,000; $6,000; and $29,000 in 2004, 2003
and 2002.

Tax benefits derived from exercise of stock options totaling approximately
$180,000, $490,000 and $0 in 2004, 2003 and 2002 were recorded as a reduction of current income taxes payable and an increase in capital in excess of
par value.

See accompanying notes to consolidated financial statements.

32

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSINNOVEX, INC. AND
SUBSIDIARIESSeptember 30, 2004, 2003 and 2002





Note A.  Summary of Significant Accounting Policies



Innovex Inc. and Subsidiaries (the
Company) is a diversified manufacturer of electrical components for the computer, data storage, consumer, medical, telecommunications and
other electronic industries. Substantially all of the Companys revenues, operating profits and assets relate to one operating segment involved in
the manufacture of flexible circuit interconnects. Company customers are located throughout the United States, Europe and the Pacific Rim. The Company
has manufacturing facilities in Litchfield and Maple Plain, Minnesota and Lamphun and Korat, Thailand.




A summary of the significant accounting policies
consistently applied in the preparation of the accompanying consolidated financial statements follows:




Principles of Consolidation and Fiscal Year
 The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions have
been eliminated in consolidation.




The Company utilizes a fiscal year that ends on the
Saturday nearest to September 30. For clarity of presentation, the Company has described all periods as if the year ended September 30. The fiscal year
ended September 30, 2004 included 53 weeks and the fiscal years ended September 30, 2003 and 2002 included fifty-two weeks of
operations.




Foreign Currency Translation  The
Company uses the United States dollar as its functional currency for its subsidiary in Thailand. Re-measurement gains and losses, resulting from the
process of re-measuring the foreign currency denominated assets and liabilities of these foreign subsidiaries into U.S. dollars, are included in
operations. Net foreign currency re-measurement and foreign exchange instrument gains (losses) of $53,000, ($321,000) and $71,000 were included in
other income (expense) in the fiscal years ended September 30, 2004, 2003 and 2002.




Foreign Exchange Instruments  The
Company enters into short-term forward foreign currency exchange contracts in the regular course of business to manage its exposure against foreign
currency fluctuations, primarily relating to nonfunctional currency monetary assets and liabilities. The forward exchange contracts generally require
the Company to exchange Thailand baht for U.S. dollars or U.S. dollars for Thailand baht at maturity, at rates agreed to at the inception of the
contracts. The contracts are not designated as hedges, therefore, the gains and losses on foreign currency exchange contracts are included in other
income (expense). The Company does not enter into forward exchange contracts for trading purposes.




Cash and Cash Equivalents  The Company
considers all highly liquid temporary investments with an original maturity of three months or less to be cash equivalents. The Company had no cash
equivalents at September 30, 2004 and cash equivalents of $10.2 million at September 30, 2003. Cash of approximately $14.2 million and $11.1 million
was on deposit in foreign financial institutions at September 30, 2004 and 2003. The Company maintains cash balances at several financial institutions,
and at times, such balances exceed insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any
significant credit risk on cash.




Accounts Receivable  The Company grants
credit to customers in the normal course of business and generally does not require collateral or any other security to support amounts due. Management
performs ongoing credit evaluations of customers. The Company maintains allowances for potential credit losses.




Inventories  Inventories which are
composed of raw materials, work-in-progress and finished goods are stated at the lower of cost or market, with cost determined by the first-in,
first-out method.




Property, Plant and Equipment 
Depreciation is provided using the straight-line method over the estimated useful lives of the assets for financial reporting and accelerated methods
for tax purposes. Estimated service lives range from 5 to 30 years for buildings and leasehold improvements, from 2 to 7 years for machinery and
equipment and from 3 to 7 years for office furniture and fixtures.


33

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Goodwill  Goodwill represents the
excess of the purchase price over the fair value of the net assets acquired. Goodwill and any other intangible assets determined to have indefinite
useful lives are not amortized. The Company has determined goodwill relates to one reporting unit for purposes of impairment testing. Goodwill and
other intangible assets with indefinite lives are tested for impairment annually or whenever an impairment indicator arises.




Fair Values of Financial Instruments 
Due to their short-term nature, the carrying value of current financial assets and liabilities approximates their fair values. The fair value of
borrowings, if recalculated based on current interest rates, would not significantly differ from the recorded amounts.




Net Income (Loss) Per Share  The
Companys basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of outstanding common shares.
The Companys diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of outstanding common
shares and common share equivalents related to stock options, when dilutive. Options to purchase 1,071,423, 859,125 and 1,312,812 shares of common
stock with weighted average exercise purchase prices of $11.39, $12.46 and $11.19 were outstanding during 2004, 2003 and 2002, but were excluded from
the computation of common share equivalents because they were antidilutive.




Revenue Recognition  The Company makes
electronic components (flexible circuits) based on customer specifications. The Companys revenue recognition policy is consistently applied
regardless of sales channels utilized and product destination. In recognizing revenue in any period, the company applies the provisions of SEC Staff
Accounting Bulletin 101, Revenue Recognition. Revenue from product sales is recognized when persuasive evidence of an arrangement exists,
the product has been delivered, the fee is fixed and determinable and collection of the resulting receivable is reasonably assured.




For all sales, a binding purchase order is used as
evidence of an arrangement. The Company also stores inventory in warehouses (JIT hubs  third party owned warehouses) that are located close to
the customers manufacturing facilities. Revenue is recognized on sales from JIT hubs upon the transfer of title and risk of loss, following the
customers acknowledgement of the receipt of the goods. The Company has an implied warranty that the products meet the customers
specification. Credits are issued for customer returns.




Use of Estimates  Preparation of the
Companys consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses and disclosure
about contingent assets and liabilities at the date of the financial statements. Actual results could differ from these estimates.




Income Taxes  The Company records
income taxes in accordance with the liability method of accounting. Deferred taxes are recognized for the estimated taxes ultimately payable or
recoverable based on enacted tax law. The Company establishes a valuation allowance to reduce the deferred tax asset to an amount that is more likely
than not to be realizable. Changes in enacted tax rates are reflected in the tax provision as they occur.




Stock Based Compensation  The Company
utilizes the intrinsic value method of accounting for its employee stock based compensation plans. The Companys 2004, 2003 and 2002 pro forma net
income (loss) and diluted net income (loss) per share would have been ($18,078,000), ($3,671,000) and ($4,623,000) or ($0.95), ($0.23) and ($0.32) had
the fair value method been used for valuing options granted during those years. The weighted average fair value of options granted in 2004, 2003 and
2002 was $3.38, $1.60 and $1.46. The value was computed by applying the following weighted average assumptions to the Black Scholes options pricing
model: volatility of 53%, 66% and 90%; dividend yields of 0.0%; risk-free rate of return of 2.8%, 2.6% and 4.0%; and an average term of 3 years for
2004 and 4.5 years for 2003 and 2002. No adjustment was made to the Black Scholes calculation to reflect that the options are not freely
tradable.




New Pronouncements  There have been no
accounting pronouncements relevant to us since the end of fiscal 2003.


34

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note B.  Inventories



Inventories are comprised of the following at
September 30 in thousands:







|                                   |  |  |  | 2004 |        | 2003
|---------------------------------- |  |  |  | ---- | ------ | ----
|Raw materials
and purchased parts  |  |  |  | $    | 5,683  |     
|Work-in-process and finished goods |  |  |  |      | 6,540  |     
|                                   |  |  |  | $    | 12,223 |     

Note C.  Line of Credit and Long-Term Debt



In June 2004, the Company entered into a new credit
facility with Bank of Ayudhya Public Company Limited (BAY) and The Industrial Finance Corporation of Thailand (IFCT) which expanded the existing credit
facility with these banks. The long-term facilities were increased by 1,060 million baht, the packing credit facility was increased by 270 million baht
and the short-term working capital facility was increased by 20 million baht. The facility is now comprised of a 660 million baht long-term facility, a
400 million baht long-term facility, a 590 million baht long-term facility, a 220 million baht long-term facility, packing credit facilities totaling
1,070 million baht, short-term working capital facilities totaling 90 million baht and a 10 million baht overdraft facility. The Thailand credit
facilities are secured by certain receivables, inventory and assets held by the Company in Thailand. As of September 30, 2004, approximately $16.1
million was outstanding under the Thailand credit facilities. Total unused availability under the Thailand credit facilities as of September 30, 2004
was approximately $45 million, of which $29 million was related to the packing credit and working capital facilities and $16 million was available
under the long term facilities to fund capital equipment expansions in Thailand.




Under the terms of the Thailand based credit
facility, any outstanding balance on the 590 and 220 million baht term loans bears interest at the average minimum loan rate (MLR) rate,
5.875% at September 30, 2004. Under the terms of the June 2004 agreement, any outstanding balance on the 400 and 660 million baht term loan bears
interest at 4.00% annually until June 11, 2005, at which time the outstanding balance will bear interest at the one year fixed deposit rate plus 3% for
the next two years and interest for the remainder of the loans term will be the one year fixed deposit rate plus 3.5%. The one year fixed deposit
rate was 0.75% at September 30, 2004. The packing credit bears interest at the BAY MLR less 1.75%, 4% at September 30, 2004. The working capital and
overdraft facilities bear interest at the IFCT and BAY minimum overdraft rate (MOR), 6% at September 30, 2004. The Company is required to
maintain certain financial ratios and meet certain net worth levels.




Long-term obligations consist of:







|(in thousands of U.S. dollar equivalents) |  |  |  | 2004 |        | 2003
|----------------------------------------- |  |  |  | ---- | ------ | ----
|Thailand BAY
and IFCT facilities:         |  |  |  |      |        |     
|590 million
baht term loan                |  |  |  | $    | 5,174  |     
|220 million
baht term loan                |  |  |  |      | 1,243  |     
|400 million
baht term loan                |  |  |  |      | 9,672  |     
|660 million
baht term loan                |  |  |  |      |       |     
|U.S. based
facilities:                    |  |  |  |      |        |     
|Various
capital leases                    |  |  |  |      | 1,185  |     
|                                          |  |  |  |      | 17,274 |     
|Less current
portion                      |  |  |  |      | 6,252  |     
|                                          |  |  |  | $    | 11,022 |     



At September 30, 2004 and 2003 there were no
outstanding balances under the packing credit, working capital and overdraft facilities. As of September 30, 2003, the 590 million baht term loan
interest rate was 5.88% and the 220 million baht term loan interest rate was 6.00%. As of September 30, 2003, the packing credit facility
interest


35

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



rate was 4.25%, the original working capital
facility interest rate was 6.25%, the additional working capital facility interest rate was 4.88% and the overdraft facility interest rate was
6.00%.




Assets under capital lease as of September 30, 2004
had an acquisition cost of $6.8 million and a net book value of $1.6 million. Interest rates on these leases range from 7.5% to 9.1%. Aggregate
maturities of long-term debt including capitalized leases for the next five years are as follows (in thousands): 2005  $6,252; 2006 
$2,776; 2007  $2,685; 2008  $3,627; 2009  $1,692; and thereafter $242. The recorded value of long-term debt approximates fair market
value.


Note D.  Stockholders Equity



Common Stock  On August 4, 2003, the
Company consummated the sale of 3,450,000 shares of common stock at a public offering price of $12.25 per share. The net offering proceeds to the
Company were $39,461,750 after deducting total estimated expenses of the offering of $2,800,750.




Stock Option Plans  The Company has
stock option plans that provide for incentive and non-qualified stock options to be granted to directors, officers and other key employees or
consultants. The stock options granted generally have a ten-year life, vest over a period of six months to five years, and have an exercise price equal
to the fair market value of the stock on the date of grant. At September 30, 2004, the Company had 913,390 shares of common stock available for
issuance under the plans.




Restricted Stock Plan  The Company also
has a restricted stock plan that provides for grants of common stock to key employees of the Company other than the Chief Executive Officer and the
four highest paid executives of the Company other than the Chief Executive Officer. The common stock grants generally vest over five years. At
September 30, 2004, the Company had 116,150 shares of common stock available for issue under the plan.




Transactions under the stock option and restricted
stock plans during each of the three years in the period ending September 30, 2004 are summarized as follows:







|                               |  |  |  | Number of Shares Under Option |           | Weighted Average Exercise Price
|------------------------------ |  |  |  | ----------------------------- | --------- | -------------------------------
|Outstanding at October 1, 2001 |  |  |  |                               | 1,576,359 |                                
|Granted                        |  |  |  |                               | 521,850   |                                
|Forfeited                      |  |  |  |                               | (303,598  | )                              
|Exercised                      |  |  |  |                               | (9,100    | )                              
|Balance at
September 30, 2002  |  |  |  |                               | 1,785,511 |                                
|Granted                        |  |  |  |                               | 542,550   |                                
|Forfeited                      |  |  |  |                               | (68,331   | )                              
|Exercised                      |  |  |  |                               | (269,328  | )                              
|Balance at
September 30, 2003  |  |  |  |                               | 1,990,402 |                                
|Granted                        |  |  |  |                               | 567,779   |                                
|Forfeited                      |  |  |  |                               | (401,793  | )                              
|Exercised                      |  |  |  |                               | (148,170  | )                              
|Balance at
September 30, 2004  |  |  |  |                               | 2,008,218 |                                

Options exercisable at September 30:



|     |  |  |  | Number Exercisable |         | Weighted Average Exercise Price
|---- |  |  |  | ------------------ | ------- | -------------------------------
|2002 |  |  |  |                    | 754,745 |                                
|2003 |  |  |  |                    | 785,837 |                                
|2004 |  |  |  |                    | 848,512 |                                

36

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes information concerning currently outstanding and
exercisable stock options:



|                |  |  |  |  |           | Options Outstanding |  |  |     | Options Exercisable | 
|--------------- |  |  |  |  | --------- | ------------------- |  |  | --- | ------------------- | 
|
|$ 0.00
 $ 2.71 |  |  |  |  | 594,430   |                     |  |  | 7.5 | years               | 
|3.46 
  4.60   |  |  |  |  | 176,750   |                     |  |  | 7.7 | years               | 
|5.04 
  9.80   |  |  |  |  | 734,438   |                     |  |  | 7.5 | years               | 
|10.20
  11.54  |  |  |  |  | 280,100   |                     |  |  | 3.4 | years               | 
|12.59
  15.00  |  |  |  |  | 149,000   |                     |  |  | 6.0 | years               | 
|26.21
  28.82  |  |  |  |  | 73,500    |                     |  |  | 2.9 | years               | 
|                |  |  |  |  | 2,008,218 |                     |  |  |     |                     | 



Employee Stock Purchase Plan  The
Company has an Employee Stock Purchase Plan (ESPP) which is available to eligible employees. Under terms of the plan, eligible employees may designate
from 1% to 10% of their compensation to be withheld through payroll deductions for the purchase of common stock at 85% of the lower of the market price
on the first or last day of the offering period. Under the plan, 500,000 shares of common stock have been reserved for issuance. As of September 30,
2004, 252,932 shares have been issued under the plan. Fair value disclosures under SFAS No. 123 have not been disclosed for shares under the ESPP as
such values are immaterial.


Note E.  Income Taxes



The effective income tax rates differed from the
federal statutory income tax rate as follows for the years ended September 30:


|                                             |  |  |  | 2004 |         | 2003 |  | 2002
|-------------------------------------------- |  |  |  | ---- | ------- | ---- |  | ----
|Federal
statutory rate                       |  |  |  |      | (34.0   | )%   |  |     
|State income
taxes                           |  |  |  |      | 1.3(0.6 | )    |  |     
|Foreign
operating income benefit             |  |  |  |      | (11.1   | )    |  |     
|Allowances                                   |  |  |  |      | 25.6    |      |  |     
|Adjustments
to income tax provision accruals |  |  |  |      | 0.4     |      |  |     
|Permanent
differences                        |  |  |  |      | (1.0    | )    |  |     
|Other                                        |  |  |  |      |        |      |  |     
|                                             |  |  |  |      | (18.8   | )%   |  |     



Components of the (benefit) provision for income
taxes are as follows for the years ended September 30 (thousands of dollars):







|         |  |  |  | 2004 |        | 2003 |  | 2002
|-------- |  |  |  | ---- | ------ | ---- |  | ----
|Current: |  |  |  |      |        |      |  |     
|Federal  |  |  |  | $    | 169    |      |  | $   
|Foreign  |  |  |  |      | 945    |      |  |     
|State    |  |  |  |      | 12     |      |  |     
|         |  |  |  |      | 1,126  |      |  |     
|Deferred |  |  |  |      | (5,178 | )    |  |     
|         |  |  |  | $    | (4,052 | )    |  | $   

37

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



During fiscal year 2002, the Company received an
income tax refund for approximately $13.2 million as part of an economic relief act that was passed into law.




Deferred taxes recognize the impact of temporary
differences between the amounts of assets and liabilities recorded for financial statement purposes and such amounts measured in accordance with tax
laws. Realization of net operating loss carryforward and other deferred tax temporary differences are contingent on future taxable earnings. The
Companys deferred tax asset was reviewed for expected utilization using a more likely than not approach as required by SFAS 109 by
assessing the available positive and negative evidence surrounding its recoverability. The Company considers projected future taxable income and tax
planning strategies in making their assessment. Accordingly, the Company recorded a valuation allowance of $24,431,000 and $18,833,000 at September 30,
2004 and 2003. The Company continues to assess and evaluate strategies that will enable the deferred tax asset, or portion thereof, to be utilized, and
will reduce the valuation allowance appropriately at such time when it is determined that the more likely than not approach is satisfied.
The net operating loss and tax credit carry-forwards of $93,500,000 expire at various dates from September 2018 through September
2024.




The cumulative temporary differences between the tax
bases of assets and liabilities and their carrying amounts for financial statement purposes are as follows at September 30 (thousands of
dollars):







|                                                   |  |  |  | 2004 |         | 2003
|-------------------------------------------------- |  |  |  | ---- | ------- | ----
|Current
deferred tax assets:                       |  |  |  |      |         |     
|Inventories                                        |  |  |  | $    | 361     |     
|Receivables                                        |  |  |  |      | 77      |     
|Compensation
and benefits                          |  |  |  |      | 360     |     
|Restructuring                                      |  |  |  |      | 88      |     
|NOL
carryforwards                                  |  |  |  |      |        |     
|                                                   |  |  |  |      | 30      |     
|                                                   |  |  |  | $    | 916     |     
|Long-term
deferred tax assets (liabilities)  net: |  |  |  |      |         |     
|Accelerated
depreciation                           |  |  |  | $    | (2,400  | )   
|Intangibles                                        |  |  |  |      | 4,425   |     
|Tax credit
and NOL carryforwards                   |  |  |  |      | 35,381  |     
|Valuation
allowances                               |  |  |  |      | (24,431 | )   
|                                                   |  |  |  | $    | 12,975  |     

Note F.  Retirement and Profit-Sharing Plans



The Company sponsors a 401(k) retirement plan for
all of its employees meeting minimum eligibility requirements. The plan provides Company matching contributions of 50% of each dollar of employee
elective deferral contributions, up to 3% of the employees compensation. Company contributions for this plan were approximately $387,000,
$330,000 and $301,000 for the years ended September 30, 2004, 2003 and 2002.


Note G.  Research and Development Costs



The Company incurred research and development costs
of approximately $5,966,000, $5,012,000 and $4,786,000 for the years ended September 30, 2004, 2003 and 2002.


Note H.  Foreign Operations and Significant Customers



The Company continues to increase the functions
performed in its Asian operation located in Lamphun, Thailand in order to take advantage of the proximity to customers and favorable labor and
operating costs. The Company had aggregate export sales of $132,496,000, $129,065,000, and $110,751,000 for the years ending


38

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2004, 2003 and 2002, principally to Pacific Rim customers. With
respect to foreign operations for the years ended September 30, 2004 and 2003, long-lived assets of $27,469,000 and $25,402,000 were located in
Thailand.



International revenue concentrations in excess of
10% were:







|                  |  |  |  | 2004 |    | 2003 |  | 2002
|----------------- |  |  |  | ---- | -- | ---- |  | ----
|Thailand          |  |  |  |      | 57 | %    |  |     
|Republic of
China |  |  |  |      | 24 |      |  |     



Revenues from two customers made up a significant
portion of the Companys total net sales during the years ending September 30:







|        |  |  |  | 2004 |    | 2003 |  | 2002
|------- |  |  |  | ---- | -- | ---- |  | ----
|Seagate |  |  |  |      | 61 | %    |  |     
|Maxtor  |  |  |  |      | 14 |      |  |     



Accounts receivable from the above two customers are
74% and 54% of the Companys accounts receivable at September 30, 2004 and 2003.


Note I.  Commitments and Contingencies



The Company paid rent of $1,271,000, $2,063,000 and
$2,113,000 in fiscal 2004, 2003 and 2002 under facility and equipment operating leases that expire at various dates through September 2007. As of
September 30, 2004, the future minimum lease commitments under the operating leases are payable as follows (in thousands): 2005  $1,167; 2006
 $1,167; 2007  $311.




The nature of the Companys business exposes
the Company to potential environmental remediation liabilities arising from the manufacture, use and disposal of hazardous materials used to
manufacture flex interconnect products. Management believes that any cost associated with maintaining the Companys compliance with current
environmental remediation laws will not have a material adverse effect on the Companys financial statements.




In July 2000, the Lemelson Medical, Education &
Research Foundation Limited Partnership (Lemelson) filed suit in the Federal District Court in the District of Arizona against Innovex,
Inc. and approximately 90 other defendants. The suit alleges that all of the defendants are violating certain patents owned by Lemelson related to
machine vision technologies. Lemelson alleges that certain of the equipment used in Innovex Inc.s business utilizes this type of technology. The
equipment was purchased from vendors whom the Company believes may have an obligation to indemnify the Company in the event that the equipment
infringes any third-party patent. The complaint seeks damages in an unspecified amount. The Company has answered the complaint denying that the Company
infringed any of these patents. Since the filing of the Companys answer, the entire case has been stayed in order to allow an earlier-filed case
to proceed. During 2004, the earlier-filed case was decided against Lemelson. Lemelson has appealed that decision and the case to which the Company is
a party remains stayed pending the outcome of that appeal. The Company cannot be sure that it will prevail in this action and any adverse outcome could
require, among other things, to pay royalties to Lemelson. The Company does not believe it is currently possible to calculate the potential for, or the
extent of, any liabilities resulting from this claim.




The Company is party to certain other lawsuits in
the ordinary course of business. Management does not believe that these proceedings, individually or in the aggregate, will have a material adverse
effect on the Companys business, financial condition, results of operations or cash flows.


Note J.  Derivative Instruments



The Company enters into forward exchange contracts
that are recorded at fair value with related fair value gains or losses recorded in earnings within the caption other (income) expense. Generally,
these contracts have maturities of six months or less. These contracts are entered into to offset the gains or losses on foreign
currency


39

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



denominated assets and liabilities. The Company
does not enter into forward exchange contracts for trading purposes and the contracts are not designated as hedges. At September 30, 2004, the Company
had open forward exchange contracts to buy Thailand baht maturing December 13 and 14, 2004 with notional amounts totaling 300,000,000 Thailand baht
(approximately $7.3 million U.S. dollars). At September 30, 2003, the Company had open forward exchange contracts to buy Thailand baht maturing October
3, 2003 with notional amounts totaling 100,000,000 Thailand baht (approximately $2.5 million U.S. dollars) and another forward exchange contract to buy
Thailand baht expiring January 9, 2004 with a notional amount of 150,000,000 Thailand baht (approximately $3.8 million U.S. dollars).


Note K.  Restructuring Charges



During the third quarter of fiscal 2004, the Company
announced the planned closure of the Maple Plain facility and the plan to discontinue the support of the FSA attachment process. Related to this
restructuring, the Company recorded asset impairment and restructuring charges of $13.1 million and $1.7 million during the last two quarters of fiscal
2004. The assets that were impaired included the Maple Plain facility and related equipment and equipment used in the FSA attachment process. The fair
value of these assets was determined using quoted market prices where available, appraised values or estimated future cash flows where more definitive
values were not available.




In order to reduce its cost structure, the Company
plans to close its Maple Plain facility and consolidate its operations with its Lamphun, Thailand and Litchfield, Minnesota facilities. In addition,
the Company plans to discontinue supporting the FSA attachment process in order to utilize its resources in other areas with higher expected returns.
Excluding asset impairment charges, restructuring charges are expected to be approximately $7 million. The $7 million is expected to be comprised of
$1.6 million for one-time termination benefits, $0.4 million for contract termination costs and $5 million for other moving and closing costs
associated with the consolidation of the Maple Plain location with the Companys other locations. Restructuring charges of $1.7 million were
recorded in the last two quarters of fiscal 2004. These charges were comprised of $926,000 for one-time termination benefits, $404,000 related to
contract termination costs and $350,000 related to moving and closing costs. The remaining charges are expected to be incurred in fiscal
2005.




During fiscal 2001, the Company recorded asset
impairment and restructuring charges related to the restructuring of the Companys manufacturing operations. The restructuring was primarily
related to moving manufacturing operations from the Companys Chandler, Arizona facility to the Companys Minnesota and Thailand locations.
During fiscal 2002 and the fiscal 2003 first quarter, additional restructuring charges of $876,000 and $750,000, respectively, were recorded due to an
increase in the estimate of the leased Chandler facility disposition costs. As of March 31, 2003, the restructuring was substantially
complete.




The remaining restructuring accrual as of September
30, 2004 totaled $241,000. Selected information regarding the restructuring follows (in thousands):







|                              |  |  |  | Manufacturing Operations Restructuring  Maple Plain |      | Manufacturing Operations Restructuring  Arizona | 
|----------------------------- |  |  |  | ---------------------------------------------------- | ---- | ------------------------------------------------ | 
|
|Accrual at
October 1, 2002    |  |  |  | $                                                    |     |                                                  | 
|Payments                      |  |  |  |                                                      |     |                                                  | 
|Change in
estimate            |  |  |  |                                                      |     |                                                  | 
|Accrual at
September 30, 2003 |  |  |  |                                                      |     |                                                  | 
|Restructuring
charges         |  |  |  |                                                      | 350  |                                                  | 
|Payments                      |  |  |  |                                                      | (350 | )                                                | 
|Accrual at
September 30, 2004 |  |  |  | $                                                    |     |                                                  | 

40

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

QUARTERLY FINANCIAL DATA (Unaudited)






|Fiscal 2004                  |  |  |  | 1st Quarter |            | 2nd Quarter |  | 3rd Quarter* |            | 4th Quarter* |  | Year
|---------------------------- |  |  |  | ----------- | ---------- | ----------- |  | ------------ | ---------- | ------------ |  | ----
|Net
sales                    |  |  |  | $           | 44,343,523 |             |  | $            | 39,264,718 |              |  | $   
|Gross
profit                 |  |  |  |             | 8,724,749  |             |  |              | 5,556,569  |              |  |     
|Net income
(loss)            |  |  |  |             | 1,593,752  |             |  |              | 137,039    |              |  |     
|Net income
(loss) per share: |  |  |  |             |            |             |  |              |            |              |  |     
|Basic                        |  |  |  | $           | 0.08       |             |  | $            | 0.01       |              |  | $   
|Diluted                      |  |  |  | $           | 0.08       |             |  | $            | 0.01       |              |  | $   

---

|* |  | The third and fourth quarters include restructuring charges of
$13,823,000 and $966,000, respectively, related to the restructuring of the Companys manufacturing operations and closing its Maple Plain
facility.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Fiscal 2003                  |  |  |  | 1st Quarter |            | 2nd Quarter** |  | 3rd Quarter |            | 4th Quarter |  | Year
|---------------------------- |  |  |  | ----------- | ---------- | ------------- |  | ----------- | ---------- | ----------- |  | ----
|Net
sales                    |  |  |  | $           | 34,525,238 |               |  | $           | 37,055,736 |             |  | $   
|Gross
profit                 |  |  |  |             | 3,495,078  |               |  |             | 4,232,846  |             |  |     
|Net income
(loss)            |  |  |  |             | (2,296,445 | )             |  |             | (1,366,873 | )           |  |     
|Net income
(loss) per share: |  |  |  |             |            |               |  |             |            |             |  |     
|Basic                        |  |  |  | $           | (0.15      | )             |  | $           | (0.09      | )           |  | $   
|Diluted                      |  |  |  | $           | (0.15      | )             |  | $           | (0.09      | )           |  | $   

---

|** |  | The second quarter includes restructuring charges of $750,000
related to the restructuring of the Companys manufacturing operations.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------

|ITEM 9. |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
|------- |  | -------------------------------------------------------------------------------------



Not applicable.


ITEM 9A.    CONTROLS AND PROCEDURES

|(a) |  | Evaluation of Disclosure Controls and Procedures
|--- |  | ------------------------------------------------



The Companys Chief Executive Officer, William
P. Murnane, and Chief Financial Officer, Thomas Paulson, have evaluated the Companys disclosure controls and procedures as of the end of the
period covered by this report. Based upon that review, they have concluded that these controls and procedures are effective in ensuring that material
information related to the Company is made known to them by others within the Company.


|(b) |  | Changes in Internal Control Over Financial Reporting
|--- |  | ----------------------------------------------------



There have been no significant changes in internal
control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to
materially affect, the registrants internal control over financial reporting.


ITEM 9B.    OTHER INFORMATION



None.


41

---



PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT



Reference is made to the sections entitled
Election of Directors, Governance Matters, Description of Committees of the Board of Directors, Section 16(a)
Beneficial Ownership Reporting Compliance and Code of Ethics in our definitive proxy statement to be mailed to shareholders on or
about December 15, 2004, and to be filed with the Securities and Exchange Commission within 120 days after September 30, 2004 (the 2004 Proxy
Statement). Except as set forth at Item 4A of this Annual Report, the information required by Item 10 is incorporated herein by reference from
the sections noted above of the 2004 Proxy Statement.


ITEM 11.    EXECUTIVE COMPENSATION



Reference is made to the section entitled
Executive Compensation and Other Information and Executive Compensation and Other Information  Director Compensation in
the 2004 Proxy Statement. The information required by Item 11 is incorporated herein by reference from the sections noted above of the 2004 Proxy
Statement.


ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT



Reference is made to the section entitled
Security Ownership of Certain Beneficial Owners and Management in 2004 Proxy Statement. The information required by Item 12 is incorporated
herein by reference from the sections noted above of the 2004 Proxy Statement.


ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS



Reference is made to the section entitled
Certain Relationships and Related Transactions in the 2004 Proxy Statement. The information required by Item 13 is incorporated herein by
reference from the sections noted above of the 2004 Proxy Statement.


ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND
SERVICES



Reference is made to the section entitled Fees
of Independent Public Accountants and Audit Committee Pre-Approval Procedures in the 2004 Proxy Statement. The information required
by Item 14 is incorporated herein by reference from the sections noted above of the 2004 Proxy Statement.


42

---

PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K



(a)    LIST OF DOCUMENTS FILED AS PART OF THIS REPORT







|(1) |  |  |  | Financial Statements                                                                                                       |  |  | Page(s) | 
|--- |  |  |  | -------------------------------------------------------------------------------------------------------------------------- |  |  | ------- | 
|    |  |  |  | The
following Consolidated Financial Statements of the Registrant, Innovex, Inc. and subsidiaries, are included in Item 8: |  |  |         | 
|    |  |  |  |   Consolidated Balance Sheets at September 30, 2004 and 2003                                                              |  |  | 29      | 
|    |  |  |  |   Consolidated Statements of Operations for each of the three years in the period ended September 30, 2004                |  |  | 30      | 
|    |  |  |  |   Consolidated Statements of Stockholders Equity for each of the three years in the period ended September 30,
2004      |  |  | 31      | 
|    |  |  |  |   Consolidated Statements of Cash Flows for each of the three years in the period ended September 30, 2004                |  |  | 32      | 
|    |  |  |  |   Notes to Consolidated Financial Statements                                                                              |  |  | 3341   | 

|(2)   |  |  |  | Financial Statement Schedules                                                                                                                                                                                                                                                                                                            |  |  |  |  |  | 
|----- |  |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|      |  |  |  | All
schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission have been omitted because they
are not required, are inapplicable or the information is included in the Consolidated Financial Statements or Notes thereto.                                                  |  |  |  | 
|      |  |  |  |                                                                                                                                                                                                                                                                                                                                          |  |  |  |  |  | 
|(3)   |  |  |  | Exhibits                                                                                                                                                                                                                                                                                                                                 |  |  |  | 
|3(a)  |  |  |  | Articles of Incorporation, as amended, are incorporated by reference to Exhibit 3 of the Companys Form 10-Q for the Quarter Ended
December 31, 1996.                                                                                                                                                                                    |  |  |  | 
|3(b)  |  |  |  | Amended and Restated Bylaws are incorporated by reference to Exhibit 3(b) of the Companys Form 10-Q for the Quarter Ended December 31,
2003.                                                                                                                                                                                            |  |  |  | 
|10(a) |  |  |  | 1987 Employee Stock Option Plan, as amended, is incorporated by reference to Exhibit 4(a) of the Companys Form S-8 dated March 17, 1989
(File No. 33-27530).                                                                                                                                                                            |  |  |  | 
|10(b) |  |  |  | Innovex, Inc. and Subsidiaries Employees Retirement Plan is incorporated by reference to Exhibit 10(i) of the Companys Form 10-K
for the Year Ended September 30, 1992.                                                                                                                                                                |  |  |  | 
|10(c) |  |  |  | 1994 Stock Option Plan, as amended, is incorporated by reference to Exhibit 4.1 of the Companys Form S-8 dated February 27, 2002 (File
No. 333-83452).                                                                                                                                                                                  |  |  |  | 
|10(d) |  |  |  | Innovex, Inc. Employee Stock Purchase Plan is incorporated by reference to Exhibit 4.1 of the Companys Form S-8 dated May 19, 2000 (File
No. 333-37380).                                                                                                                                                                                |  |  |  | 
|10(e) |  |  |  | Innovex, Inc. Restricted Stock Plan is incorporated by reference to Exhibit 4.1 of the Companys Registration Statement on Form S-8 dated
August 23, 2001 (File No. 333-68228).                                                                                                                                                          |  |  |  | 
|10(f) |  |  |  | Form of Employment Agreement between certain executive officers and the Company is incorporated by reference to Exhibit 10 of the
Companys Form 10-Q for the Quarter Ended December 31, 2003.                                                                                                                                           |  |  |  | 
|10(g) |  |  |  | Second Credit Facilities Agreement effective June 11, 2004 between Innovex (Thailand) Limited as the Borrower and The Industrial Finance
Corporation of Thailand and Bank of Ayudhya Public Company Limited as the Creditor is incorporated by reference to Exhibit 10.1 of the Companys
Form 10-Q for the Quarter Ended June 30, 2004. |  |  |  | 
|10(h) |  |  |  | ** License and Development Agreement dated October 12, 1999 between Innovex Precision Components, Inc. and Applied Kinetics, Inc. is
incorporated by reference to Exhibit 10.1 of the Companys Registration Statement on Form S-3 (File No. 333-1065734.)                                                                               | 

43

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|10(i) |  |  |  | ** First Amendment to the License and Development Agreement dated July 1, 2001 between Innovex Precision Components, Inc. and Applied
Kinetics, Inc. is incorporated by reference to Exhibit 10.2 of the Companys Registration Statement on Form S-3 (File No.
333-1065734).     |  |  |  | 
|----- |  |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|10(j) |  |  |  | ** Second Amendment to the License and Development Agreement dated October 4, 2002 between Innovex Precision Components, Inc. and Applied
Kinetics, Inc. is incorporated by reference to Exhibit 10.3 of the Companys Registration Statement on Form S-3 (File No.
333-1065734). |  |  |  | 

|21   |  |  |  | Subsidiaries of Innovex, Inc.                                                              |  |  | 46 | 
|---- |  |  |  | ------------------------------------------------------------------------------------------ |  |  | -- | 
|23   |  |  |  | Consent of Grant Thornton LLP                                                              |  |  | 47 | 
|31.1 |  |  |  | Certification of Chief Executive Officer pursuant to 13a-14 and 15d-14 of the Exchange Act |  |  | 48 | 
|31.2 |  |  |  | Certification of Chief Financial Officer pursuant to 13a-14 and 15d-14 of the Exchange Act |  |  | 49 | 
|32   |  |  |  | Certificate pursuant to 18 U.S.C. § 1350                                                   |  |  | 50 | 

(c)    EXHIBITS



Reference is made to Item 15(a)3.


(d)    SCHEDULES



Reference is made to Item 15(a)2.


---

|* |  | Indicates a management contract or compensatory plan or
arrangement.
|- |  | --------------------------------------------------------------------

|** |  | Certain portions of the Exhibit have been deleted and filed
separately with the Commission pursuant to a request for confidential treatment under Rule 406.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

44

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SIGNATURES



Pursuant to the requirements of Section 13 or 15 (d)
of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.







|                       |  |  |  | INNOVEX,
INC.                                                                    
|---------------------- |  |  |  | ---------------------------------------------------------------------------------
|                       |  |  |  | By /s/ WILLIAM P. MURNANE William P. MurnanePresident and Chief
Executive Officer
|                      
|Date: December 6,
2004 |  |  |  | By /s/ THOMAS PAULSON Thomas PaulsonChief Financial Officer                      



Pursuant to the requirements of the Securities
Exchange Act of 1934, the following persons on behalf of the Registrant and in the capacities and on the dates indicated have signed this report
below.




Each of the undersigned hereby constitutes and
appoints William P. Murnane and Thomas Paulson as the undersigneds true and lawful attorneys-in-fact and agents, each acting alone, with full
power of substitution and resubstitution, for the undersigned and in the undersigneds name, place and stead, in any and all capacities, to sign
any of all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all said attorneys-in-fact and agents, each acting alone, or may lawfully do
or cause to be done by virtue thereof.







|/s/ WILLIAM
P MURNANEWilliam P. Murnane |  |  |  | President, Chief
Executive Officer and Director (principal executive officer)
|--------------------------------------- |  |  |  | -----------------------------------------------------------------------------
|                                       
|/s/ THOMAS
PAULSONThomas Paulson        |  |  |  | Chief Financial
Officer (principal financial officer)                        
|                                       
|/s/ THOMAS
W. HALEYThomas W. Haley      |  |  |  | Chairman and
Director                                                        
|                                       
|/s/ PHILIP
D. ANKENYPhilip D. Ankeny    |  |  |  | Director                                                                     
|                                       
|/s/ RAJ
K. NOOYIRaj K. Nooyi            |  |  |  | Director                                                                     

45

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